Dollar Index Finally Shatters Resistance

Dec 21, 2007: 11:13 PM CST

We’ve been waiting for this anxiously for months! The US Dollar Index is showing initial signs of strength, and has broken convincingly above resistance on the daily charts.

Generally, a stronger dollar (or currency) is psychologically beneficial to the people of the nation, is not always best for all economic parts.

For example, companies that rely primarily on exports actually are benefitted by a weaker currency relative to other currencies, meaning that their profit margin is higher.

If this trend continues upward in the dollar, we can expect to see these stocks (which have amassed large gains) begin to top out and perhaps even decline.

For those who trade FOREX, realize that the downward trend in the dollar (relative to other currencies) may be ending, and you should adjust your strategies appropriately.

While the Daily Chart may show signs of hope, the weekly chart needs a few more weeks to do so.

We may have experienced an ‘exhaustion swing’ down which could lead yet to higher prices.

While the daily chart has broken resistance, the weekly chart sits squarely AT resistance (from the falling 20 period moving average). This area could serve as resistance just as it has done nicely on the previous tests.

Keep in mind that the orientation of the moving averages on both the daily and weekly charts is in the most bearish combination possible (20 beneath the 50 which is beneath the 200). There’s no reason yet for unbridled optimism that the dollar will reverse at this point.

We’d need closes above the key moving averages and a shift in the averages’ orientation to get wildly bullish.

Until then, know that “the tides may be turning.”


2 Responses to “Dollar Index Finally Shatters Resistance”

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