Update on the Daily US Dollar Bull Flag: Bump in the Road

Jan 27, 2010: 1:20 PM CST

I recently highlighted the “Bull Flag Formation in the US Dollar Index” on January 18th (see prior post), and now that we have successfully broken higher confirming the bull flag, it’s time to take an updated view of the daily US Dollar Index chart to take a look at a “bump in the road” that must be overcome to complete the full target.

Let’s see that now.

Taking a compressed view, we also see the lengthy positive momentum divergence that preceded the sharp (expected) rally in the Dollar Index.

A bull flag has formed, and was triggered with an aggressive entry as price tested the 50 day EMA in mid-January (also the lower Bollinger Band) while forming a doji candle.

The conservative entry was triggered when price broke sharply above the descending upper trendline three days later.

For those who are taking this trade, I wanted to call your attention to the overhead resistance that is currently blocking the advance – which comes in at hte descending 200 day simple moving average (currently at $78.62) along with the upper Bollinger Band ($78.69).

Buyers will need to keep pressing through this confluence resistance level to meet the pure price ‘flag’ target near $80.50… which is a strong possibility if price can move solidly above $79 this or next week.

Otherwise, we could see a potential turn-around here at the confluence level.

Let’s zoom to a closer view to spot this resistance better:

The key price to watch is the $78.75 and then – for extra confirmation – $79.00.  Any break above these levels clues us in strongly to expect a full resolution of the flag in motion which targets the $80.50 index level.

Take a look at the weekly and then monthly charts also (which I do each week for members of the Weekly Intermarket Reports premium service) to find the following convergences:

50 week EMA:  $78.58

Weekly Upper Bollinger Band:  $78.73

As such, it is unsurprising that price is stalling slightly at the confluence resistance (across multiple timeframes) at the $78.75 level.

Continue watching this level closely for any signs of an inflection down here, otherwise, a break above $79.00 clears this roadblock and places us back on the path to the expected ‘pure price pattern’ target.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

9 Comments

9 Responses to “Update on the Daily US Dollar Bull Flag: Bump in the Road”

  1. * Fibozachi * Says:

    vn note, Corey.

  2. Richard Says:

    Timely and important article.

    I believe that if the US Dollar is to move higher, then the $USD:$XJY, the USD/JPY will have to move higher from 90.
    http://tinyurl.com/ydse87q

    And I do not believe that is going to happen as I believe the yen, FXY, is going to at the least mainatain its strength; the MSN Finance chart shows the yen, FXY, since January 7, 2010, has risen compared to the other world currencies: fxe ,inr, bzf, fxc, fxa, fxb, xru, fxs, fxf, cny, szr, uup.
    http://tinyurl.com/yk4hxz5

    The yield curve is steeping, gold prices are headed higher soon; in as much as the US Dollar trades inversely of gold, this means the dollar will be headed lower.
    http://tinyurl.com/y8urt6s

    I strongly encourage one to own the gold ETF, GLD, in a trust account — not a brokerage account, British Sovereign coins, and buy gold at Bullion Vault.com

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  4. law6 Says:

    great job Corey!

  5. law6 Says:

    great job Corey!

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