Dollar Bulls May Change Their Tune

 | May 01, 2013 | 6:00 AM EDT
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I realize I have started to harp on this subject, but that's because I don't see many others discussing it: In recent days, the biggest moves in the markets have been a sliding dollar. I have been a bear on the currency since early March, when it had reached its target and the events in Cyprus could no longer take the dollar higher.

For months now, I've tweeted about the dollar's failure almost on a daily basis, and no one has retweeted -- but, when I posted another negative buck comment Tuesday, I finally got a couple of retweets and a comment. That is a start!

On Tuesday I posted the dollar index chart, showing that the current price was sitting right on an uptrend line. I had hoped for it to break that line and test 81.75 -- and I am getting my wish, as it settled at 81.80. But, since folks are most bearish on the euro-dollar currency pair, let's take a look at that instead. (Keep in mind that most of Europe is closed for the May Day holiday Wednesday, so it may get pushed around quite a bit, especially with the Federal Reserve announcement on the table.)

Sure, the euro-dollar cross has gotten through that second downtrend line -- but all eyes will now be on the level just above $1.32. If the euro can get through it, there really won't be much resistance until it gets near $1.33. I get the sense some are starting to rethink their bullish view of the buck, so I'd like to see if the euro can get through that $1.32 level -- and, if so, how many folks will change their tune from dollar bull to dollar bear. There is a measurement near $1.34, as well, but let's not get ahead of ourselves.

Euro-Dollar Cross

Another group needs to be watched, especially since it is a Fed Day: the banks. I know most folks love the Financial Select Sector SPDR (XLF) as their go-to ETF for this sector, but that contains more than just banks, which is why I watch the KBW Bank Index (BKX). The BKX made its high in March and a lower high in early April -- and, in the latest market rally, it has again stalled out at a lower high.

KBW Bank Index

If the BKX cannot get up and above this 57-ish area, we will be able to add the banks as another negative divergence when the broader market reaches an overbought reading again later this week.

Curiously, the Oscillator's overbought reading is set to show up just as the employment report hits our desks. In case you haven't been keeping track, the advance-decline line has been positive for seven out of the last 10 trading days. The string of positive readings set to drop off the moving average begins on Friday.

Now, if only everyone would stop talking about "Sell in May."

Overbought/Oversold Oscillator -- NYSE


Overbought/Oversold Oscillator -- Nasdaq

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