I just returned last week from Seoul, Korea last week and spent a great deal of time there speaking about the U.S. Dollar and the Dow Jones. These two markets are of keen interest for anyone trader dollar-correlated pairs.
This week we find these two daily charts are at important levels as prices have reached the previous highs on the Dow. The near term highs are 10516 and 10513 and today’s high was 10514 – so we’re in the resistance zone. The question now is whether this will hold as we ceiling.
The reason why this ceiling and the highs must be watched is because of the relationship back to the U.S. Dollar.
The U.S. Dollar has been moving higher which would mean that the Dow should be weakening if the standing correlation is to hold. All correlations keep working…until they don’t. So never assume a correlation, instead, always look to confirm the correlation. If the high in the Dow holds and the equities sell-off, this could rally an already bullish sentiment in the U.S. Dollar Index and propel it to 77.00 – where once again the conviction of the bulls is likely to be tested as the 77.00 psychological level has been an area of resistance.