Interesting times ahead for the Dollar as the short term momentum indicators turned up into buy mode. What it looks like is a triangular pattern with breakout confirmation above 74.7. That would mark the beggining of a major dollar rally which can have the same effect as the dollar rally of 2008.

The pattern back then was similar [see chart below]. The impact was that between April 08-Hune 08 various commodities started topping out. Gold topped in March and crude continued till July and was the last one. This time round crude topped in April and Gold has continued till July. But the inversion of the lead lag might exist just to confuse. Its similar to the idea that US topped in Oct 07 and India in Jan 08, where as this year India topped first in Nov 10 and US in May 11. Lead lag inversion might be just a phenomena of this move with the same consequences once a trend is established.

Another interesting feature among correlations was that Gold topped in Mar 08 the first time when the US market made its wave 1 down bottom ie completed its first wave down in the bear market. Last week the Dow completed a 5 wave decline and is now pulling back to the neckline as was indicated in my posts. So has gold finally topped? as it did back then. The pattern is very similar and the wave counts can fit in. That gold reacted from the upper channel line as shown below one has to consider the two alternates below that allow a 5th wave to end till short term bullish readings show up again.

The rising dollar would put pressure again on other asset classes as well once the short term bounces in equities and metals are over. Also note some time back I tried bullish assumptions on Silver and it rallied but yesterdays fall from 61.8% retracement, close below 20dma and overlap with the high of 11/08 at 39.77, makes me suspect that wave B as originally anticipated completed in a rising wedge as shown below and now wave C down in Silver to $29 might start. I am not saying it will happen but I see this as a risk the confirmation might be if the wedge trend line at 38.65 is actually broken. If the dollar does start a rally it would mean that the dollar expansionary policies are unlikely to resume anytime soon [read QE, Bailout etc.]