* The dollar rose on Friday as US stocks fell. US personal income was flat while spending increased a modest 0.2%. Data on US and European consumer sentiment were better than expected. The S&P 500 fell 2.05 points to 1,028.93. The USD/JPY, just above support, rose modestly on Friday but fell for the week. The EUR/USD declined after failing to penetrate the important 1.44-area resistance. The GBP/USD reversed earlier gains, moving near the 1.62 support. The AUD/USD pared gains, unable to break the 0.85-area resistance. The USD/CAD fell despite a small increase in crude oil prices.
* The dollar index rose today on declining US stocks. Highly correlated with risk aversion and equity markets, the index has failed to break resistance from the downtrend. The dollar peaked when equities bottomed in March. US equities are at important resistance and quite overbought. In addition, September and October are usually difficult times for stocks; thus, arguing for a stock market correction. On the other hand, the economic outlook is favorable and monetary policy is likely to remain easy, which could support stocks. The dollar index is between significant support and resistance. A penetration of either support or resistance will likely lead to a big move and possibly determine the intermediate-term direction. If the stock market continues its ascent next week, the dollar index will likely test the 76-handle support.
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