One chart set-up that we need to watch closely in the coming hours and days is the comparison of the dollar and commodity indexes, as their directional price implications could have a major impact on a cross-section of markets.

Let's notice that the recent up-leg in the Dollar Index (DXY), which peaked at 81.78 on Jan 13, ended amidst a series of daily RSI momentum divergences that warn us that the U.S. Dollar could be in the early stages of a significant period of weakness. A sustained break of 79.50 will trigger initial signals that such a move is unfolding, which should have a positive impact on the commodity index.

A sustained climb in the Reuters/Jefferies CRB Index above 314.55 will be our first indication that the commodity index is breaking above its May-Jan resistance line. This also will constitute a breakout from a nearer-term Oct-Jan basing formation that projects to 335-340 initially.

By Mike Paulenoff

Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.

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