As can be seen on this chart, the U.S. Dollar is close to its all-time lows. The Bollinger Band in this chart indicates that the downward momentum for the U.S. Dollar has been broken. However, this doesn't necessarily imply that a reversal is in the cards. From a probability standpoint, a consolidation at these low levels is a much higher statistical probability. If the value of the USD remains in a consolidation pattern at these low levels, an eventual continued downward movement is likely on an intermediate to long-term basis.This is important, because it may have a significant impact on commodity prices and inflation. If the US Dollar Index futures close below the lower Bollinger Band, continued weakening of the Dollar will probably continue.
In recent days and weeks, the European Central Bank and the Bank of Japan have both hinted at the possibility of central bank interventions to halt or slow the fall of the dollar. This tough talk alone could possibly prevent the continued decline of the dollar -- for awhile.
However, once the markets become accustomed or adjusted to this lower level, represented in the charts by the Bollinger Bands flattening out for a period of time, then a further downward move in the dollar would be more likely. If the U.S. economy rebounds, the US Dollar will likely rebound as well. One critical testing point will probably be next week's jobs report on Friday. If employment in the United States declines and disappoints the markets, it could drive the US Dollar through the lower Bollinger Band and initiate a new round of US Dollar selling.
Commodities prices will very likely be somewhat dependent on the fate of the US Dollar.
