The stealth rally in the dollar might soon not be so stealth anymore.

The U.S. Dollar Index (USD) has rallied nearly 1% over the past two weeks. That’s a big move for a currency. But, it’s largely gone unnoticed.

Maybe that’s because the dollar has fallen so much over the past five months that a 1% pop isn’t worth noticing. Or, maybe it’s because the action in so many other financial assets has commanded our attention.

But, traders might want to start paying attention.

The dollar’s decline since March helped support much of the gains in those other assets. And, if this short-term dollar rally starts to gain momentum, then there’s a good chance the prices of other assets will start to fall.

Based on the look of the following chart, the quiet rally in the dollar might start making some noise.

Take a look at this chart of the Invesco DB U.S. Dollar Index Fund (UUP)…

When we looked at this chart last month, we noticed the positive divergence that developed as the price of UUP fell to a lower low while the technical indicators all made higher lows (solid red lines on the chart).

That was an early indication that the downtrend in the dollar was nearing an end.

The buck has rallied 1% since then. And now, the chart is showing a bullish ascending triangle pattern (solid blue lines). If UUP can break above the resistance line of the pattern – at about $25.25 – then it could kick off a more significant rally in the dollar.

It’s worth noting that the dollar made its low of the year in late August. The S&P 500 made its high of the year at the same time. Since then, the S&P 500 has fallen about 4% while the dollar has rallied 1%.

If the dollar breaks out to the upside, then there’s a good chance the stock market will break to the downside.

Best regards and good trading,

Jeff Clark

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Reader Mailbag

In today’s mailbag, Ronald agrees with Jeff’s recent essay on gold…

Hi Jeff, regarding your essay, “Has Gold Peaked?” you’re probably right. Almost all the buyers are in – even Warren Buffett jumped in as he did with the Airline stocks.

– Ronald

Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming – and send us any questions – at [email protected].