Positive Divergence on US Dollar Index

Jul 16, 2007: 9:36 AM CST

I know the headline gives it away, but a positive momentum divergence is clearly forming on the US Dollar Index, as evidenced by the 3/10 momentum oscillator and a “Swing Chart” reading.

The dollar index recently made new lows, which hit the newswaves rapidly, but from a technical perspective, we have at least three bullish factors working:

  1. A positive momentum divergence
  2. A possible double bottom… or at least a successful test of previous lows established near the start of 2005
  3. Selling momentum decreasing (evidenced by shallower ‘swings’)

dollar-index-july-16.jpg

Of course, the index must still overcome established resistance at the 20 and 50 period moving averages, as well as the ominous 200 MA just above it. Should price break these barriers, momentum should carry price markedly higher.

A “weak” dollar is actually not a horrible thing – in fact, for some businesses, their profits are much higher due to favorable exchange rates (especially for US companies that do significant sales overseas and then convert their profits in the foreign currency to US dollars to report overinflated earnings due to exchange rates).

You can find much deeper fundamental analysis from other websites, news sites, and blogs if you are interested in the deeper picture of what a weak dollar means for stocks, companies, and the US Economy as a whole.

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