To the surprise of many, the US Dollar Index – once feared to be in a hopeless downtrend – has resurfaced to new life and is forming a potentially bullish continuation pattern on strong technical strength. Let’s look at the daily chart to see these developments.
US Dollar Index: Daily Chart
Price bottomed in July on a mini-positive momentum divergence before breaking above both the 20 and 50 day EMAs, surviving a ‘confluence support test,’ and then reawakening into a strong upwards move which has shown considerable and surprising technical (price) strength and resiliency.
Price has formed a series of new momentum highs, the most recent of which was confirmed by a new price high in late October prior to our current pullback to support at the rising 20 day EMA. The EMA is holding as support currently, and price is forming a potential bullish continuation, symmetrical triangle, which would be confirmed by a break above the $87.00 index value level.
A break below $84.00 would invalidate the pattern and would set-up a likely test of the rising 50 day EMA around $82.00.
One has to wonder, “How far will the US Dollar Index go up and how low will certain commodities go?” Keep that in mind when interpreting these charts, as Crude Oil is trading near $60 per barrel (after challenging $150 per barrel highs) while gold is trading near $730 per ounce (after challenging $1,000 per ounce highs).
In terms of the weekly chart, the US Dollar Index is holding strongly above all averages, and we can see just how impressive the recent rally is in the larger picture:
Momentum has been steadily trending upwards, and price ’survived’ a significant moving average confluence ‘test’ in September.
Let’s continue to watch these developments for signs of continuation or weakness, and observe how a stronger dollar plays out in other markets and certain stocks (generally, a strong dollar hurts large, multinational companies based in the US).