Key Trendline Price Level to Watch in US Dollar Index

Mar 2, 2011: 9:35 AM CST

The US Dollar Index continues to flirt with a long-term (3-year) Trendline and critical support level which traders are watching very closely.

Let’s take a moment to look at this trendline and level as it stands now in the Dollar Index:

We’re seeing the US Dollar Index ($DXY) on the Daily Scale (though a weekly would work just fine) from the early 2008 bottom (just after the Stock Market Peak) to the present new highs in the S&P 500 (last week).

This long-term trendline touches about six swing lows – including the major inflection low/pivot from December 2009.

The index interacted with this level twice in 2010 and recently in January – and technically we’re sitting right on – or just below – the blue trendline as we start March.

The next potential support zone to catch price would be the simple $76 Index level, which drew in support in November 2010 and twice around August/September 2008.

A breakdown under the $76 support sets up a play for the 2009 low near $74.20… and deterioration below that could send the index back down to the 2008 levels – but let’s not assume that is the only pathway until we start breaking immediate levels right here.

Though the upper trendline isn’t as clear, there’s a declining trendline that ends above the $80 index level.

That means that – chartwise – we have a triangle consolidation in the US Dollar Index – and that’s how we should define the trend until proven otherwise … Sideways/Flat/Consolidating.

A support bounce – one would think would be bearish for stocks/commodities – likely sends the index back to the $80 index level though further deterioration beneath $76.70 to $76 and down to perhaps $74 would likely be bullish for stocks/commodities.

Keep in mind that Middle-East tensions have temporary shifted the classic Inter-market Relationships (as I showed in yesterday’s post).

Whatever the play you devise in the cross-markets, keep a close watch on current trendlines and the $76 level immediately in the US Dollar Index.

Corey Rosenbloom, CMT
Afraid to Trade.com

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