After nearly a month with little correlation between the currency sector and the broader market there appears to be a high correlation today. Around 3 a.m. the Dollar Index started a downward trend that has led a rally in the Energy and Metal sectors that started shortly after the currencies. The break in the Dollar is mostly led by a rally in the European Currencies, especially the British Pound. Whether this is a one day aberration or a trend that is beginning is yet to be resolved, but I am closely watching this relationship.
I am still looking at the 80.135 level in the Dollar Index as the breakout on a topping pattern that projects to 7907. Also, I am looking at the 151.86 level in the Pound as the breakout on a rally that projects to 155.08. The Pound was the weakest European currency throughout February, so I view strength in it as a clear market reversal that should support commodities if the correlation holds. The Euro/Yen cross has a nice base on it that has good potential to rally, which is also a good indicator of equity and commodity strength.
While I would hold off on executing trades in these currencies right now I would reevaluate them after the Fed announcement this afternoon. The strong commodity rally today looks oddly foreshadowing of the impending Fed announcement, as it looks like the market is anticipating little to no change in the Fed's policy. I do not recommend fading or selling this rally, but instead to look for pullbacks to buy momentum in commodity and equity markets in the future if the announcement is as expected (except Sugar...seriously, do not buy the sugar right now...and the Nat.Gas for that matter).
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