US Dollar Index Completes Bear Flag as Expected

May 26, 2009: 12:38 PM CST

The US Dollar Index completed its large-scale Bear Flag on the Daily Chart and I wanted to highlight this development to you and discuss what it might mean going forward.

The Flag began about the $89.00 level (coming off a long and short-term negative momentum divergence at the price highs) and led to the initial thrust lower (breaking EMA support), forming a 45 degree angle clean “abc” retracement (which actually breached the EMAs and violated the “Cradle Crossover” zone just slightly), and then we got the expected move down to fresh 2009 lows at the target area of $80.00.

A flag’s target is obtained by taking the high ($89.00), subtracting the low ($82.50) and then subtracting this value ($6.50) from the top of the flag once we get a breakdown from the rising trendline (at $87.00).  This gave us a rough estimated target of $80.50 which was met and exceeded last week.

I mentioned this Bear Flag three times in the posts:

Bear Flag Breakdown in the US Dollar?,”
Cross-market Comparison of the Dollar, Gold, and Crude Oil – April 26,”
US Dollar Continues its Slide in Bear Flag.”

I think a lot of people picked up on this pattern so it wasn’t a surprise.

Now that the pattern is complete, we have reached a “Technical Decision Node.”  Often, the price projection point off a flag (once it completes) precedes a reversal (or retracement) in price (due to people covering their positions at the target) and so we could see some short-term demand coming back into the market at the $80.00 level.

In other words, it’s probably not the best idea to run out there and short the dollar at this juncture.

Other levels of possible support include the $78 level which was prior support in December, and the $76 level for the same reason.  Unfortunately for bulls, we’ve broken the 61.2% Fibonacci retracement zones if drawn off the September and December lows to the recent March high.

Take a look at the weekly chart as well – we’ve fallen off a cliff and have broken the 50 week EMA recently in a stellar defeat to the dollar bulls.

Let’s keep watching this to see if we get at least a temporary retracement up off price target support perhaps to the $83 level at best, or if the dollar bears are just relentless in their selling pressure.

Corey Rosenbloom
Afraid to Trade.com

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

4 Comments

4 Responses to “US Dollar Index Completes Bear Flag as Expected”

  1. Weekly Comparison Structure of the Dollar and Gold May 27 | Penny Stock Trading System Blog Says:

    […] well as the price projection target of the bear flag (which I mentioned in yesterday’s “Dollar Index Completes Bear Flag” […]

  2. A Look at the Two Dual Rallies in the SP500 and US Dollar Index in 2009 | Afraid to Trade.com Blog Says:

    […] May 26, 2009: US Dollar Completes Bear Flag as Expected […]

  3. A Look at the Two Dual Rallies in the SP500 and US Dollar Index in 2009 | Penny Stock Trading System Blog Says:

    […] May 26, 2009: US Dollar Completes Bear Flag as Expected […]

  4. HeistLab 1 » Blog Archive » A Look at the Two Dual Rallies in the SP500 and US Dollar Index in 2009 Says:

    […] May 26, 2009: US Dollar Completes Bear Flag as Expected […]