Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
I am using the UUP ETF as a stand in for the actual dollar since it charts real time on stockcharts.com but as you can see below, the U.S. dollar is in an extremely oversold position. I believe the general thinking of the market is since (a) Draghi will do “whatever it takes” to keep the euro together, you have the euro breakup scenario off the table and (b) the Fed will be doing a pure QE while the ECB will be doing sterilized actions, hence the dollar loses the ugly duckling contest. And as we know, when the dollar pukes usually every risk asset rises. That said, things can get to an extreme – so it is interesting this is happening just before a Fed meeting.
I can’t see too many instances the past few years where the UUP is fully below the lower bollinger band … also it has a RSI below 30. Both are secondary indicators showing extreme pessimism. When a bounce of any sort happens – dead cat or otherwise – it will be interesting to see how the market handles it, especially the hot spot of the (half week) i.e. commodity stuff.
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