The US Dollar Index is on the balance of a precipice, the resolution of which will determine its short-term structure.  Right now, the Dollar Index has formed and now retraced back into the Cradle Crossover Zone.  Let’s see all this on the Daily Chart:

Until recently, the Dollar was in a strong uptrend, which was halted by a sudden retracement from $89 to $78 into the final months of 2008.  Since then, the Index has made a new high above $89 again, but it can’t seem to hold ground at this level (much like Gold can’t seem to hold above $1,000).

I state that the Dollar is at a ‘precipice’ particularly because it has reached a “Decision Node” that will determine the structure going forward.  If price breaks above $86, then we’ll almost certainly see a run to test now highs.

However, at this point, it appears like the Confluence Resistance at $86 may be a bit too much to overcome.

We see that the 20 and 50 EMAs have formed the “Cradle,” which sets up at the price point where the 20 EMA crosses under (or above) the 50 EMA.  The “Cradle Trade” forms when price (which has broken beneath the averages to cause the cross) rallies back into this confluence (or crossover) point to challenge it as resistance.

More times than not, I’ve observed that the Cradle holds, and price is rejected and that’s what sets up the “Cradle Trade,” which calls for a tight stop to be placed just beyond the crossover confluence level.

In this case, we also have the 50.0% Fibonacci Retracement coming into play at this level, which served as the intraday high of the day.

A Spinning Top Candle (almost a doji) has formed at the confluence resistance level.

It’s not to say that price can’t overcome the $86 level, but it would be remarkably bullish if it did so.

Corey Rosenbloom
Afraid to Trade.com

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