Well, we reached the previous rally high on USD yesterday after three days of strong rises, so that we are in a new wave up looks likely. A small further push upwards this week will give us final confirmation:

What does this mean for equities? Well judging by the last wave up, it should at least keep a lid on equities while it is ongoing, but it may well do no more than that.

Targets on forex look much clearer than targets on equities though. The weekly fan on GBPUSD suggests that the next target for cable is $1.55 or thereabouts:

There is also a clear next target for EURUSD at under $1.38. Depending on news from the Eurozone, channel support there may break and open up the next target at $1.30, but I'm not expecting that to happen soon unless one of the PIIGS has to be bailed out.

CHFUSD also has a clear target at 93, which is the support intersection of the current declining channel and an older rising channel.

Beyond that there is a rising wedge target at 85 that could just be reached by the end of the USD rally. We'll have to see how well the current declining channel stands up, but the previous falling wedge met target just before the current decline began so maybe:

So what's the likely target for the USD rally? That's a difficult one to call but I have a likely maximum target that may well be reached on the (very likely IMO) assumprtion that we are in a long term USD bear market.

I have marked up the chart according to the most likely EW count for this long bear market, and by my count we are in the second sub-wave up of the third wave down. They'd better look out below as and when this rally ends of course, but in the short term we could see this rally go much further, and my favorite target for it is at the 78.2% fib retracement of the first subwave of 3 at 86.265.

You can see that there is serious fan resistance there, but that line is also the most obvious target. The second wave of five frequently retraces most of the move of the first, and more than likely that will happen here too.

 
I was looking hard at this trying to find a credible bullish count for USD, but I couldn't see one. After this rally finishes, we should see the USD decline well below the current bear market low at 70.7, and that will have very far-reaching consequences.

Equity bears had better hope that the inverse correlation between USD and equities continues to break down over the next few months. It has already weakened a lot since the start of this USD rally. If the correlation reverses altogether, the likely fall in USD could be very bearish for equities too, and it is difficult to see how the longer term disintegration of fiat USD can be good for the US. 

What won't reverse though is the inverse correlation between USD and commodities. As USD tumbles in the longer term, commodities will soar, and gold particularly will become ever more credible as a real currency that cannot be debased. Bill Bonner's pair trade of the last decade was to sell Dow & buy gold. From where we are now, that looks a likely winner over the next decade too.