Perhaps Another Surprise, $USD

The consensus is the $USD is strong and it will continue to strengthen through 2015 as the F_E_D normalizes policy/interest rates.

Admittedly the $USD is not in a vacuum and the number of currencies with moves of 10% over the last 12 months is near historical highs, some much, much more which effects the $USD /$US Dollar Index.

However, while the trend has clearly been up and a few days don't necessarily make a trend, I'd imagine just about everyone is long the $USD and short the Euro and Yen, thus that could be too many people on one side of the boat and you know how the market doesn't like that as it's essentially a zero sum game, someone has to lose for someone else to win.

I'm wondering after all of the earnings (bad) that have been blamed in part or large part on the strong $USD, would like to revise his stance that a strong $USD is good for the country? Or how about the "Weak oil" narrative, that hasn't been working out too well either.

I found these charts interesting, especially coming before the F_O_M_C tomorrow, however it's not helpful as a piece of the puzzle with regard to the broad market right now, it really creates more questions than answers. In any case, here's a look...

 Daily chart of UUP- DB USD Index with a large positive divegrence/base and in line thus far or price/3C trend confirmation.

 The 6 hour chart shows the same thing, a huge positive divergence at the base and in line on the up trend.

And the 4 hour chart shows the same.

Even the 30 min chart is in line, so we've essentially established there's a reason the USD keeps heading higher, underlying trade is supportive.

That's why some very recent changes are of interest. Now nothing goes straight up or down and there has been a lot of currency devaluation sending the $USD higher, to put together all of the different moves and how one effects another at this point is really best left for an arbitrage computer trading program and I may not have even thought much of this if it weren't right in front of the F_O_M_C tomorrow.

The conventional wisdom is that the F_E_D is not going to hike interest rates this soon in the year, the closest thing we probably got to guidance from the F_E_D was Yellen's "A couple" meaning 2 , meetings, so the second meeting in 2015, but there were a ton of caveats with that as well.

It's kind of difficult to believe that the F_E_D would hike with oil so low as they did say they'd hike before they hit their 2% inflation target  so long as they felt reasonably assured inflation was on track to move toward that goal.

There have also been some pretty large firings/lay-offs recently and then of course there's the devaluation across the globe and the strong $USD, despite what Jack says, I think the F_E_D would prefer that the $USD wasn't so strong, rate hikes and policy normalization should only make it stronger. 

At the same time, policy normalization is likely not going to be helpful for the broad economy and probably less so for the stock market.

On the other side of the coin, things are pretty ugly and getting uglier, not just in the US, but globally and as the Bank of International Settlements (BIS) said not too long ago and I paraphrase, "Leading Central Banks (read F_E_D) don't have the room on their balance sheet to deal with even a garden variety recession".

So you might make the case  that policy normalization is needed to give the F_E_D elbow room, you can't go much lower than ZIRP.

I could go back and forth with this all day, perhaps with rising rates they think it may force inflation which would be a risky gamble, it usually doesn't work that way, but without getting in to the inner workings of my mind, I've considered a scenario in which that might be possible.

In any case, a sliding $USD right now, just in front of the F_O_M_C would tend to suggest that something on the dovish side is expected, whether taking a pass on rate hikes at this meeting would be enough to consider that a dovish move considering market consensus doesn't expect a rate hike at this meeting anyway, seems doubtful.

I really can't speculate much more with any profound insights so back to the charts...

 Here , recently on a 5 min chart we see a negative divergence and price has stutter-stepped since then.

 The 1 min chart shows a much sharper negative divegrence, although it would as a shorter term chart and less powerful in signals. I avoided drawing on the chart just because the divergence is SO obvious.

 As for the $USDX futures, this is a 60 min chart, it's not a crisp, clean divergence, but there seems to be a negative tone in the area.

However this 30 min (shorter term like UUP's 5 min), has a very crisp, clean negative divergence. It's not huge, it's also around the same area as the market's negative divergence from last Friday, this doesn't make a lot of sense on a straight level as the historical legacy arbitrage would suggest a lower $USD means higher oil, gold, commodities in general and equities, yet both are negative i the area.

Playing devil's advocate though...

 This is a chart of the SPX (green) vs. the $USDX (red). In the white box to the left, you see a more "normal" historical legacy arbitrage in which the $USD and equities move opposite each other. To the right, you can see that has changed. Granted, there are a lot of other circumstances during the period.

A closer look at more recent action, the trends aren't exact, but generally the same. I realize that "Correlation is NOT causation".

Again though on the devil's advocate side of things, the SPX and $USDX are pretty darn near in line during the mid to late 1990's and then after the Tech top in 2000.

Just as we have seen Treasuries rally with the market  which is not a normal correlation.

Still, the point is the recent change in the $USDX, this is a 15 min $USDX chart. I think the UUP charts above show things a bit cleaner.

As I said, thus far this is worth looking at, but is not especially helpful in putting the pieces of the puzzle together without getting real creative and that's hard to justify on such a short term movement compared to the longer term trend, but the situation in itself appears to be a significant problem and F_O_M_C / F_E_D tightening should only make that worse.