Lesson in Confluence Support from the US Dollar Index

Aug 15, 2010: 9:37 AM CST

The US Dollar Index surged over 3% this week, which is actually a big move in the index.

It gives us a good lesson in how multi-timeframe confluence support can unite to form a powerful move and turn-about in price – as we can see in the weekly and daily charts.

Let’s start with the Weekly Chart:

I’ve been showing in my Weekly Intermarket Report the two confluence levels of support to watch, and what to expect at each.

First, we had a nice confluence of the 50w EMA and 50% Fibonacci retracement at the $81.50 level… and if the index failed to find support and bounce off $81.50, then the play was to expect a downward thrust to test the second and final price confluence at $80.

We ended last week right at the $80 level for a “Make or Break” support play, where a reversal or bounce up off this level was the expected play, but a downside break under $80 would be a game-changing bearish event.

Is it were, the Dollar Index not only bounced off confluence support at $80, but surged off of it.

The confluence comes specifically from the 200 week SMA at $80.14 and the 61.8% Fibonacci retracement as drawn at $79.86.  That converges about the $80 level.

Let’s now drop to the Daily Chart to see more evidence of confluence at the $80 level.

Going into the week, we had price testing the 200 day SMA – a very critical average – at the $80.50 level as well as “riding” (going down with) the Lower Bollinger Band.

More importantly, price retested the prior support area from the April and Feb-March price congestion/support area also at $80.

With all the price support, the daily chart – and especially the intraday charts – formed positive momentum divergences as shown in the 3/10 Momentum Oscillator and other momentum oscillators (Rate of Change, etc).

It’s often a good idea to take profits (if short) when price tests a confluence support area and forms lower timeframe positive divergences.

Traders can also find good opportunities to get long in such a structure when price breaks a falling trendline – such as what happened on Tuesday, August 10th on the break above $81.00.  That’s a more conservative “Prove it to me” entry.

An aggressive entry would be getting long as price tested the $80 price, which allowed a tight stop under $80 or $79.50 – depending on how much you wanted to risk.  When price tests a major confluence support area, you can often locate your stop closer than you would be able otherwise, which allows for explosive reward to risk ratios.

For now, keep focused on the $83 area which is confluence resistance – and a breakout above there would be a further confirmation that a likely reversal has taken place, instead of a one-week retracement.

The more you study these patterns/situations, the better prepared you’ll be to recognize and then trade them in real time as they develop.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade


2 Responses to “Lesson in Confluence Support from the US Dollar Index”

  1. nfl jerseys Says:

    We have many nfl jerseys in stock,if you need ,you can to nfl jerseys site.

    We produce a variety of nfl jerseys .Welcome to buy!

  2. uggbootscheapuk Says:

    A brace of blubberyugg boots,UGG Bailey Button Boots withugg classicugg boots saleugg boots ukugg boots cheap,snow cubangzhenugg classic boots,ugg classic tall,aberrant covering and braided scaletall ugg bootsuggs boots<,a href=”http://www.uggbootscheap.uk.com/ugg-classic-tall-5815/womens-ugg-classic-tall-boots-grey“>ugg classic tall grey,ugg classic short chestnut, it is the activity of Japanese Street.Chooseugg classic short sale,ugg classic short metallic,ugg classic cardy boots grey,a brace of atramentous snowugg classic cardy grey,ugg classic cardy black,boots are absolutely in chargeugg classic cardy boots black,ugg classic cardy tall,ugg classic cardy sale,of a lot of courage,fortunatelyugg bailey button triplet,ugg bailey button bomber,ugg bailey button side boots,ugg bailey button uk, with a analogously absorbingugg bailey button bomber boots,ugg bailey button grey,ugg bailey button saleugg bailey boots,atramentous cubangzhen aberrant continued sweater to balanceugg button boots,bailey button uggsbailey button chestnut ugg boots,.Women's anxiety cool,especially during autumn and winter acclimate does not assure anxietybailey button bootsbutton ugg boots,ugg boots sundanceugg bailey button chestnut,not alone accessible to put the bottom freezing,easier affecting women's health, fall/winter division baddest a brace of balmy clothes and Ugg Boots is actual important,a acclaimedugg krinklebailey button ugg boots ukchestnut bailey button ugg bootswomen's bailey buttonbailey button krinkleuggs short sand, is autumn and winter snow boots in against balmy style,the winter a bifold ensures anxiety adequate and warm,UGG boots in autumn 2010 new snow is added than in the accomplished appearance with snow UGG Classic Cardy Boots easier!