The recent weakness in the euro and global economic uncertainty—along with the dollar’s status as a reserve currency—has sent the US dollar index surging.

While you may be aware of that, you might not be aware that the recent rally has taken us to upper price levels not seen since the November 2008 and March 2009 lows.

We’re now at a key resistance level that, if broken, will officially turn the long-term trend of the US dollar index back to up, which would be a major reversal.  Let’s see it.

US Dollar Index Monthly Chart


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After falling in a multi-year downtrend after the 2002 peak, the US dollar index is now at a critical spot that could trigger an official trend reversal back to the upside.

The index formed a higher low (first step in a trend reversal) at the December 2009 bottom, and the recent rally has carried us back to the prior swing high from the late 2008/early 2009 swing to the $90.00 index level.

A break above $90—from a pure price trend standpoint—will turn the long-term trend back to the upside, as it will create a new swing high.

Those looking to be a bit more conservative with calling an official trend reversal can wait to declare the long-term trend as “up” when and if the index can cross above the late 2005 swing high and 200-month simple moving average, which reside at the $92.50 index level.

Let’s drop down to the weekly chart to see the recent structure.

US Dollar Index Weekly Chart


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A close look shows us that the key short-term level to watch on the dollar index is the $89 to $90 level, which was the prior resistance from the bear market (in stocks) of 2008.

The stock market bottomed at 667 (S&P 500), while the US dollar index topped at $89 in March 2009 as the short-term trends (or intermediate term trends, actually) for both markets reversed.

The dollar bottomed at the $74 level in December 2009, while stocks continued onward to peak at 1,219 in April 2010.  Stocks have suffered a sharp decline since the recent peak.

A long-term trend reversal to the upside in the dollar index would be seen as bearish for stocks.

By Corey Rosenbloom of ArfaidToTrade.com

Corey Rosenbloom will be a speaker at this week’s LA Traders Expo. Click here to watch LIVE Webcasts from the Expo (registration is free).