US Dollar is Poised to Outperform Crude Oil in 2011

If you look at the daily ratio spread of the US dollar/ crude oil going back to Jan 2007, you will find that the 65 day (13 wk) average on the daily charat (not shown) defines the trend (when trending) in this spread wonderfully. The dollar/crude oil spread set a short term low on Feb 1 and then popped above the 65 day average this week. Then today, it is attempting to breach its downsloping trend from 2009-2010. Near term with Iranian warships on the move, crude should outperform the dollar. That said, when we look to the weekly spread charts 13 week volatility bands we can see evidence that dollar/crude oil spread is trying to turn back up. Note the dollar spike off the June 08 low, huge short cover / unwind in the dollar crude oil spread into Dec 2008. Now there is a Decennial pattern to consider. Look back from the Dec 08 high to Dec 1998 peak in the spread. The dollar declined against crude oil for two years into the week of Jan 16 2001 just like the dollar has declined for the past two years off the Dec 2008 peak. Note the spread did some price basing before Jan 2001 and before Jan 2011. This consolidation period allowed the volatility bands on the ratio spread to trend sideways with the ratio spread finding support at the intermediate (13 wk) lower volatility band. These considerations suggest the dollar is apt to outperform crude oil in 2011, perhaps into Jan 2012 if the decennial history is any guide. This hypothesis is consistent with weekly behavioral Models indicating Crude oil prices will crest by mid 2011.