The Second Most Important Chart in the World

The U.S. dollar is the most important chart in the world. Take your pick of which dollar chart is the most representative, but most USD crosses and USD indexes paint a similarly bullish story. If you subscribe to the Milkshake Theory from Santiago Capital this can be bullish for U.S. stocks. I see that potential, but lean bearish on U.S. stocks here because I see that as more probable. Whichever way U.S. markets move, a breakout in the U.S. dollar will be bearish for emerging markets and most foreign assets.

Which brings us to the second most important chart in the world: the Chinese yuan. USDCNY was in the prior post on the dollar. Here it is again. It is a very clear bullish setup with a chart target around the 7.50 level.

What has me excited right now is how many foreign currency crosses are also at major support levels. What you see in USD is confirmed when looking through EUR, JPY, etc. When many charts show the same thing, such as a gold bull market in many currencies, it points to a strong underlying bull move.

Additionally, other crosses are on the cusp of confirming breakouts. Which brings me to the next two charts. EURCNY and CNYJPY. The next breakdown move in both would be a collapse in the euro and a collapse in CNY (breakout in the yen). However, the euro chart could easily swing to a bullish breakout if CNY breaks down more than the euro. And that makes EURCNY the second most important chart in the world.

There are two potential outcomes. One is the euro breaks down vs CNY, which would be major for global markets and would push DXY into a breakout. I don't think that is the most likely scenario. The other scenario is CNY breaks down. That is where USD and JPY charts point. The strength of a move in CNY moves could determine (or at least signal) whether the next leg of the dollar rally is a developed market rout or an EM rout. I'm betting the latter.