US Dollar Index Corrects Nicely off Weekly Resistance

Jan 6, 2008: 1:24 PM CST

Fewer patterns are more pure than the recent price rejection at upper resistance via the falling 20 period moving average in the US Dollar Index. It is an example of how to use two time frames for confirmation.

First, let’s look at the structure of the daily chart with a few possible thoughts:

First, we see a new momentum high around December 10th, forecasting higher index prices are yet to come, and a consolidation flag further confirmed this impulse with a break and ‘measured move’ to the upside which actually terminated in two perfect targets:

  1. The “Equal Swing” or “Measured Move” of the forecasting value of the potential flag formation
  2. The weekly resistance level due to the weekly declining 20 period moving average

Why should traders not have been extremely excited at the early break above moving average resistance on the daily chart?

Because price still had to clear the hurdle of resistance via the weekly 20 period moving average.

Let’s see how the “larger structure” affected the otherwise ‘bullish’ daily chart:

We see a near ‘perfect’ pullback trade as price found resistance at the declining weekly moving average. Daily chart readers were not justified in rampant bullishness.

The structure of the higher time frame (weekly chart) is still in a pronounced and clear downtrend, and one cannot become majorly bullish on the US dollar (from a technical analysis standpoint) until the structure of the moving averages and of price swings changes.

Until then, we can expect trends to continue until they are clearly reversed. That’s not the case so far in the US Dollar Index.

2 Comments

2 Responses to “US Dollar Index Corrects Nicely off Weekly Resistance”

  1. Ana Says:

    Corey

    What your post describes here reminds me of what Ray Barros at his blog calls Negative Development setups.

    Please see Ray’s post on Dec 6, 2007 direct at:

    http://tradingsuccess.com/blog/negative-development-as-a-set-up-69.html

    What Ray says is we should wait for retest or re penetration at the zone to take a trade.

    A ND follower
    Ana

  2. Corey Rosenbloom Says:

    Ana,

    Sounds good as well! Thank you for the reference to Mr. Barros’ post.