I think it may be time for the 2nd counter trend rally in the dollar. The first rally came after 3 years of decline. The current decline lasted almost 2 1/2 years. I was expecting new lows in the neighborhood of 15% below the 04 bottom. The dollar dropped 12.5% below the previous low. That's probably close enough. The last bounce took the dollar above the 40 week moving average and tacked on 15%. If this shapes up to be another counter trend move, 15% would take the dollar back up to resistance in the 80 range.
During the last counter trend move the stock market was range bound for the most part of 05. In a secular bear market stocks are going to need bigger and bigger infusions of liquidity to maintain the upward trend. If the Fed is going to try to drain liquidity from the markets I would expect more of the same sideways trading. This may accomplish the goal of bringing down commodity prices temporarily. However once they start inflating again commodities are going to bounce right back.
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