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IMHO…

Big statement but here’s my support.

It starts with the lack of acceleration through the “00”. Breaks through major psychological level – of which the “00” is the most significant – can often lead to momentum as prices find footing at the “00”. When this doesn’t happen, I have to stop and wonder why…

The dollar’s bounce was on par with the pullback in the Dow Jones, an inverse correlation I watch closely.

5-25-2011 2-12-22 PM.jpg
Chart courtesy of eSignal with my GRaB and 34EMA Wave plug-in.

The U.S. Dollar Index overlaid with the Dow Jones (e-mini). This chart is often an excellent visual representation of the push-pull relationship of these two contracts which can often shed light on risk appetite and risk aversion.

It’s logical then that if the Dow Jones has completed it’s correction lower, then the U.S. Dollar Index has also reached resistance. Again, it’s back to that lack of acceleration to the upside of the dollar after breaking 76.00.

Here’s another view of why the dollar may be struggling to reach for higher highs and attract more bullish momentum.

5-25-2011 2-21-35 PM.jpg
Chart courtesy of eSignal with my GRaB and 34EMA Wave plug-in.

The weekly U.S. Dollar Index has corrected higher to the 20 period SMA and 34 period low. Notice also there is no support above the 38.2% Fibonacci Retracement and therefore this level – despite being pierced – is still resistance. The trend on the weekly also remains down with the 34EMA Wave moving at a “four to six o’clock” angle throughout 2011.

If risk appetite has resumed the tolerance for more risk will send the dollar lower while sending crude oil and the Dow Jones – two of my Forex Market Pulse charts – higher.

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