On the above daily US Dollar Index Futures chart, we observe that even though the Index reversed lower for the week, a major reversal higher in the US Dollar Index has begun as it recently broke out above the downward sloping trend channel as shown in blue. We strongly anticipate that the US Dollar Index has reached its final short term cycle wave low based on cycle time measurements as indicated with purple arrows. We anticipate the possibility of a sharp recovery move higher will materialize quickly as risk is reduced from other markets and the US Dollar is seen as the safest haven.

As per the Commitment of Traders (COT) report released on Friday by the Commodity Futures Trading Commission (CFTC), the Commercials or Hedgers moved slightly below the Zero level to a slightly net short position which is similar to declines in 2008 and 2009 patterns when the Index reversed from its lows as shown with red arrows. In the US Dollar Futures Index, Commercials or Hedgers positioning net short is a bullish sign for the Index as this particular hedging in the futures market offsets other off exchange positions as we indicate with the historical patterns on the above chart.

We continue to take the position that the US Dollar has the potential to strengthen as debt defaults in US Dollar denominated instruments all over the world. Commercial Real Estate loans, sovereign debt and municipal bond potential defaults keep us bullish for the US Dollar. As a result of debt defaults, demand for the US Dollar may increase because there would be fewer dollars in the system.

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