Burning Dollars

Feb 27, 2008: 6:14 PM CST

Could the US Dollar Index get any lower? Absolutely, as today’s price action showed us rather resoundingly:

Not only did the index make new price lows, but it made new momentum lows, which could forecast even lower prices are yet to come.

The index closed at $74.17, violating the late November price low of $74.50. The trend is still down, and the orientation of the moving averages is as bearish as they come.

The weekly chart confirms this super-bearish sentiment:

Notice how the falling 20 period moving average served as key resistance for price since late December.

In a trending environment, price frequently retraces back to this key average before making new lows, which has happened repeatedly in this index.

With lower currency prices, one can expect higher inflation, and as the Federal Reserve continues to cut interest rates, we can expect even lower prices for this index under fire.

7 Comments

7 Responses to “Burning Dollars”

  1. The Fluid Trader Says:

    Hi Corey,

    It looks like a nice Impulse Buy signal may come up for the daily chart. But as you said, the dollar has room to fall more as it is new momentum lows and also it will probably continue its trend as trends are more apt to continue rather than reverse.

    I see some changes to the site! I like it! Hope all is well with you!

  2. Corey Rosenbloom Says:

    Hey Fluid Trader!

    Do you mean an Impulse Sell? 🙂 With the new momentum low and new price low, that sets up the impulse sell. It’s not as fun as the impulse buy, but the concept and projection is the same: a retest of the prior price lows at least.

    This is one of the strongest prevailing trends I have seen on such a major index as the Dollar! There was talk of bullishness through the recent consolidation period but you nailed it 100% in that the prevailing trend grants higher odds to the downside than reversing. Eventually the trend will reverse, but we’re not in the business of calling tops or bottoms, but of identifying the path of least resistance and highest probability!

    Thank you! I am also having a component website designed which will be very exciting once it is ready. There are some major additions in store for blog readers!

    All the best!

  3. Tomo Says:

    Hi Corey.

    I have one question about ‘Impuls buy and sel’ setup. How do you decide where is a new momentum high or low? What time has to elapse so you can say there is new momentum high/low? I hope you know what I mean.

  4. Corey Rosenbloom Says:

    Hey Tomo,

    That’s a good question. Generally, you are comparing price swings with momentum readings, and it’s ideal to see a new NMH (or NML) for as far back as you can see. Reasonably, if you’re looking at daily charts, look back about 3 months and with weekly, maybe look back one year or some combination of that. There’s really no definite rule I use currently, though I need to be testing that to develop one.

    New Momentum Highs should be confirmed with New Price Highs, or that is a non-confirmation. I hope this helps.

  5. Tomo Says:

    Thanks.

    I started to use it on 5 min charts. It makes sense (at least when you take a signal when you have one). So if you have any ideas for 5 min charts it would be great to hear them 🙂 And New price highs also can be relative depending how many days back you look. Am I right?

  6. Corey Rosenbloom Says:

    Right. On the 5-minute chart (which I use extensively), the lookback period may be 2 or 3 days or so.

    Also, one major thing I’ve noticed on the 5-min charts is that gaps throw off momentum readings on the 3/10 oscillator. Be careful about interpreting divergences which occur directly following gaps. During a major gap day, it may be best to throw out the oscillator totally and just play off price patterns and perhaps moving averages.

    Always look for potential support/resistance levels from the daily charts and overlay potential boundaries on the 5-min chart, as well as intraday pivot levels/prices.

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