Based on the net speculative positions in the USD there is a 100% chance (based on past occurrences) that the dollar will rally from here. According to a report today from Credit Suisse the US dollar has rallied 100% of the time from these levels on a 3 month basis. On a 1, 2 and 6 month basis it has rallied 80% of the time.

Eoin Treacy's view Pundits have characterized the schizophrenic nature of financial markets over the last year and counting as "risk-on / risk-off". The inverse correlation between the US Dollar and 'risk assets', such as stock and commodity markets, has been particularly evident recently. This relationship might just as easily be characterised as a US Dollar carry trade where cheap and abundant credit accessed in the USA is reinvested in higher yielding or better performing assets globally.

I have mentioned almost daily in the Subscribers Audio that equities and commodities are in a sweet spot. The best performing markets are becoming increasingly overextended relative to their 200-day MAs, with an opposite condition evident for the US Dollar. A short covering rally for the US Dollar would likely be a catalyst for profit taking in other assets and in my opinion is the single greatest risk to the current impressive performance for 'risk assets'.

Greater numbers of countries are becoming increasingly vocal in their opposition to US Dollar weakness but we do not yet have a signal that a reversal is underway. The Euro broke above the $1.40 level, the Dollar fell to a new low against the Yen (later pared) and the Canadian and Australian Dollars tested parity today. The Singapore Dollar also hit another new high but later pared the intraday advance. Even though trends remain consistent, the extent to which the Dollar has become oversold means we are getting closer to the next major rally. Rather than becoming more bearish, the opposite attitude is likely to be more profitable over the new few weeks and possibly months.