Could the US Dollar Index be forming a bottom? That is the $64,000 question, no doubt, but the index which has been marked down to new lows is now showing early signs of potential strength.

Make no mistake, the US Dollar Index is in a confirmed daily (and weekly) downtrend, but price has managed to create a higher low and could be on its way to creating a higher high.

The higher low came at $75, after price settled and reversed above its prior low at $74.50.

Although the moving averages are in the most bearish orientation possible (20 beneath the 50, beneath the 200), price is indeed currently above these levels, and has broken above briefly three times since December.

A momentum divergence has also formed which is being resolved currently.

The odds may be shifting currently to the more bullish (US Dollar Strengthening) case, but the index still has a bit more convincing to do before we can call a new potential daily uptrend. The odds still favor lower index prices until the uptrend shift is complete.

Let’s look at the weekly chart for more insight:

Does your bullish perspective shift more bearish when you view the strength of the downtrend on the weekly chart?

We see price testing the falling 20 week moving average, which has served as key resistance throughout the entire downtrend.

I have drawn the arrows where this average served as key resistance. Only once did price pierce the average (October, 2006) but the 50 week average served as key resistance at that point.

The swings are narrowing, indicating that a period of consolidation may be ahead, and price could break above the key average, but the 50 sits just overhead like an ominous cloud on the otherwise bright horizon.

With the Federal Reserve still on a pathway to lower interest rates, the US Dollar Index may still continue its weakness until the Fed shifts its “easy money” policy.