Recent US Dollar Index Action Chart

Aug 30, 2008: 11:06 AM CST

With the US Dollar Strengthening, officially reversing the trend back to the upside, and consolidating above support, let’s look at the daily and weekly chart to see what’s happened and what might be in store.

US Dollar Index Daily Chart:

The dollar bottomed at the same time that the US Stock Market bottomed (July 15th), yet the dollar has surged with massive relative strength over the equity indexes, which rallied comfortably and then now are ‘chopping’ around the daily charts.

I cannot underscore how powerful and meaningful this recent momentum impulse was and what it means for the US Dollar Index.  This is one of the strongest upward surges in the index in years (both on the daily and weekly chart) and the assumption is that it is powerfully bullish for the Dollar.  New momentum highs often precede new price highs.

The trend of the Dollar Index is now positively confirmed as “up” (after making a higher low, higher high, and then taking out that high) and then breaking solidly above moving average resistance.

In terms of the moving averages, the 20, 50, and 200 day moving averages are officially in the “most bullish orientation possible” in terms of the 20 being above the 50, with both above the 200.  One cannot ignore this development – these moving averages now serve as expected price support.

Also, I have drawn in small blue Fibonacci retracement levels off the July 15th low to the August $77.50 high.  The retracement support levels are the following:

38.2%:  $75.25
50.0%:  $74.50
61.8%:  $73.75

That being said, let’s look at the structure on the weekly chart.

US Dollar Index Weekly Chart:

A positively confirmed trend reversal (up) has also occurred on the weekly chart, which is a dramatic development many assumed to be impossible.  The blue hash marks represent a higher high, higher low, and the confirmation (break above) that level.  Also, price has broken above the 20 period EMA (which is a significant development) and now above the 50 week EMA (also a critical development).

We can now expect these averages to provide potential (initial) support.  The 20 week EMA rests at $73.30 and the 50 week EMA rests at $75.40.

We could be due for a clean retracement of the recent powerful impulse (price doesn’t go up forever) which is why I’ve called attention to the potential support levels.  But for now, with a fresh trend change officially in place, we have to shift our interpretation and focus to the bullish side unless proven otherwise.

The downtrend has ended and now we’re into a new environment – be sure to pay attention to all the intermarket relationships and economic realities that will come from this new development.

3 Comments

3 Responses to “Recent US Dollar Index Action Chart”

  1. Eyal Says:

    This is the result of the dollar being so oversold and also maybe looking to the future where after election the new president will have to do something with the fact that the US in in a huge overdraft situation and the will have to make the dollar more attractive to foreign investors ( by raising rates or getting more taxes from the public ).

  2. theWild1 Says:

    Eyal – It will definitely be interesting to see what the new president and his people will do.

  3. Nik Says:

    Stock prices are correlated with the company’s profits and growth potential (in theory). Value of a currency is ALWAYS in relation to other currencies (that’s why we ALWAYS have currency pairs. You can’t really BUY dollar, without selling some other currency).

    Dollar hasn’t gone up. It’s the other currencies that are falling in relation to dollar. Dollar was oversold, for several reasons: 1) on purpose by the US government entities (weaker dollar = stronger exports); 2) on purpose by the Europeans (they wanted a strong currency); 3) of ignorance and denial by the Europeans mainly, who thought that oh this financial crises is mainly a US thing.

    It is a US thing, but when the US gets sick, guess what? Everyone crashes. And that means Euro is up for a little rude awakening. And that’s exactly what is happening. Euro is crashing.

    USD has mostly been steady against the Chinese Yuan as of late. But CNY will go down (vs USD) also. Also NOT because the US economy is getting better, but because, guess what. China is gonna discover that it, too, depends on the US. Well, most people already know that, but getting a number out of China…

    That’s another reason USD got sold. Because US is much more transparent than Europe and especially China. Others can hide their weakness for months hoping the storm is gonna go away. But this one ain’t gonna go away so quickly.

    Alas, we are seeing the dollar appreciate even when the US market is down and full of bad news.