US Dollar Index Makes Fresh 2008 Highs

Oct 5, 2008: 11:31 AM CST

The US Dollar Index made fresh 2008 highs on Friday, but only marginally so.  Let’s look at the daily chart as well as the longer term monthly chart for potential clues to the future.

Also, Adam Hewison of Market Club recently released a two-part video series entitled “The Past and Present of the US Dollar Index – What’s Ahead?”  It’s worth viewing as Adam walks us through the longer-term charts down to the present.

US Dollar Index Daily Chart:

Price formed a new high marginally just shy of index level $81.00.  There’s a potential bearish development, in that price has formed a doji candle pattern at the upper channel of the Bollinger Bands – other oscillators (such as Stochastics and RSI) are showing “overbought” readings.  It’s probably not the best time to be short-term bullish on the Dollar as a result, as price has cleanly made a sharp run up, despite bearish sentiment out there.

Momentum made a marginal new high which is roughly equivalent to the previous oscillator peak in early August.  A negative divergence formed into September prior to the large down-swing (retracement) which took price to the exact 50.0% Fibonacci retracement of the move from July to early September.

Let’s pull the view way back to the Monthly charts.

US Dollar Index Monthly Chart:

We can see two good example of triple-swing momentum divergences, first to the downside in early the early 2000s and then to the upside from 2003 to 2005.

Momentum is making a long-term divergence from the 2003/2005 lows to the current price lows – notice how momentum is making a clearly higher low as price made new lows into 2008.

Price has broken above the 20 month EMA and could find resistance via the falling 50 month EMA just above $82.50 – we’ll need to watch this area closely as price tests these levels.

Continue to watch the US Dollar Index closely, and apply your own analysis to your research for more insights.

9 Comments

9 Responses to “US Dollar Index Makes Fresh 2008 Highs”

  1. Dominick Says:

    Hello Corey. One quick question, when you use stochastics and rsi, what numerical settings are you plugging into the ocillators?

  2. Corey Rosenbloom Says:

    Hey Dominick,

    Personally, I don’t use RSI or Stochastic all that much, but when doing so, I either use the default settings (14 periods) or will shorten them both to a 9-period RSI and a 9-period Full Stochastics (9,5,5) on StockCharts.com.

    These are popular indicators and so I mentioned them in passing that they were showing overbought conditions. Looks like what’s overbought will continue to be overbought, as the dollar has risen to higher levels this morning.

  3. Dominick Says:

    Thanks Corey. Keep up the good work.

  4. jordan Says:

    Hi Corey,
    I’m hoping you can throw some light on why the USD is rising when there is recession fears ongoing? I’m not able to figure this out. Thanks

  5. Corey Rosenbloom Says:

    Hey Jordan,

    It’s an excellent question. What I’ve been able to gather so far is the following:

    The Slowdown/Recession has turned Global, and is affecting foreign economies harder than it is the US, therefore while virtually all economies are falling, the foreigns are falling faster than the US (relative), therefore their currencies are falling faster than the US Dollar. Therefore, because the Dollar Index is a basket of relative currencies, it is falling the slowest thus is showing ‘relative strength.’

    Also, with ‘demand destruction’ in commodities/oil, this is bullish for the dollar.

    So, it’s relative strength, not absolute strength of the Dollar.

    That’s my take.

  6. jordan Says:

    Thanks Corey, I was thinking of along this line too and its nice to hear your confirmation.

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