US Dollar Index Continues its Slide from Bear Flag

May 7, 2009: 10:49 AM CST

The US Dollar Index appears to be continuing its journey downwards out of a confirmed break-out of a bear flag.  Let’s see this structure and identify possible downside targets.

Check out the post I wrote on April 24th entitled “Bear Flag Breakdown for the US Dollar Index?” where I showed the initial formation and breakdown of this pattern that has continued to now.

The ultimate “Measured Move” target – should we achieve it – is roughly $81 (logic explained in prior post).

Right now, I wanted to highlight a possible support confluence at the $82.60 level, which comes in at the 61.8% Fibonacci retracement, 200 day simple moving average, and the March 2009 lows.

Price is now hovering at the 50% retracement, and if bears push price beneath $84, then this will set-up a “Magnet Trade” or “Open Air” move to challenge the confluence support mentioned above.  If dollar bulls fail to hold the $82.60 level, then the dominant pattern becomes the bear flag with nothing (chart-wise) left to stop it.

The caveat to dollar bearishness is the $85 confluence resistance area – this area holds the convergence of the 20 and 50 day EMA as well as the 38.2% retracement.

For the meantime, and until proven otherwise, odds seem to favor downside prices for the dollar, which would be bullish for broader commodities.

Corey Rosenbloom, CMT
Afraid to Trade.com

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6 Comments

6 Responses to “US Dollar Index Continues its Slide from Bear Flag”

  1. DJ Says:

    If USD goes down, markets will continue to go up. Is that still valid?

  2. Corey Rosenbloom, CMT Says:

    The inter-market relationships are a little out of balance (dollar and gold rising together, bonds doing their own thing) so current conditions may or may not continue their linkage into the future.

    Yes, when the dollar falls the market generally rises, but again look back to mid-April to present where the dollar index fell from $87 to $84 while the stock market continue to rise.

    My goal is to interpret the charts as best as I can, identify risk-points (S/R) and opportunities, and then take on risk/positions accordingly.

  3. DJ Says:

    If USD goes down, markets will continue to go up. Is that still valid?

  4. Corey Rosenbloom, CMT Says:

    The inter-market relationships are a little out of balance (dollar and gold rising together, bonds doing their own thing) so current conditions may or may not continue their linkage into the future.

    Yes, when the dollar falls the market generally rises, but again look back to mid-April to present where the dollar index fell from $87 to $84 while the stock market continue to rise.

    My goal is to interpret the charts as best as I can, identify risk-points (S/R) and opportunities, and then take on risk/positions accordingly.

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