Intraday Breakdown in Dollar index Hourly Structure

Dec 13, 2010: 11:53 AM CST

We’re seeing a big move down this morning in the US Dollar Index (and by proxy, a move UP in the EUR/USD FOREX Pair).

Let’s take a quick look at the Hourly Structure and see how this is playing out and what to watch next.

In this week’s Inter-market Report to subscribers, I wrote of the potential for a Bear Flag formation in the hourly Dollar Index (showing a chart very similar to this).

That was the dominant play with the alternate play being a bullish break above the $80.50 level … which is now off the table.

This morning triggered potential entry at two distinct levels for short-term traders.

First, the mini-trendline breakdown exactly at the $80 level, and more importantly, the second trendline – the actual “flag trendline” – breakdown just above $79.50.

As long as the index remains under the $79.50 level, it puts it within the potential Bear Flag pattern, also called an “AB=CD” or “Measured Move” pattern, which gives a Price-Pattern Projection Target down to the $78 region.

That’s what we’ll be watching as the days go on – a completion of this potential pattern targets $78.

Watch initially for a possible pause/support of the pure price swing lows at $79.20 and $79.10 respectively – or to be ‘really’ safe, look to see if the $79 index level breaks soon.

The corresponding level to watch for a breakdown confirmation in UUP is roughly $22.85.  As I type, it looks like it’s trying to support there, but watch closely for a breakdown under there.

As a reminder, if this does wind up to be a Bear Flag pattern, expect a similar “measured move” of the initial impulse that began the flag, which is the time-period from the November 30 peak to the December 5th low in a similar move, which is roughly $2.30 on the Index.

This pattern would likely fail if the index strengthened suddenly back above $80, which is probably where traders will place stops.

And for those who love divergences, take some time to look at the divergences I labeled with respective index price highs along the way.

As a standard caveat, watch price levels extremely closely for signs of confirmation/non-confirmation on the way to an expected price target, especially on the fast-changing intraday charts.

Corey Rosenbloom, CMT
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3 Responses to “Intraday Breakdown in Dollar index Hourly Structure”

  1. Joshua Says:

    No doubt this will bode well for US equities, and enhance the momentum trades to the long side

  2. Joshua Says:

    No doubt this will bode well for US equities, and enhance the momentum trades to the long side

  3. London Stock Market Says:

    this one should come down and fall below 78 soon