US Dollar Index Structure and Support Zone

Sep 22, 2008: 11:11 AM CST

With many eyes focused on the US Dollar Index, the value rose significantly, surprising many analysts, but now is experiencing a pullback in prices.  What does the structure look like and where will we likely find potential support?  Let’s look.

US Dollar Index Daily Chart:

The US Dollar Index turned a new leaf and emerged into a confirmed uptrend in June as price formed a higher high, higher low and then took out the marginal price high at $74 (the full reversal is not shown in this chart).  I highlighted this potentially significant development, but price continued to consolidate and form a base (rectangle bottom) before breaking out above consolidation and the 200 day moving average (conspicuously at the same price level) and rallying to a significant percentage gain to present.

Price was only able to form a marginal retracement which wound up being a bull flag continuation pattern that achieved its target and formed a negative momentum divergence at the upper Bollinger Band – odds became high for a retracement/reversal which is what we’re experiencing (consummate with a positive reversal in gold/oil/other commodities).

So where might we find support in the index?

On the daily chart, it might be at the 50 day EMA at $76.50.  Does that level have additional significance?

US Dollar Index Weekly Chart:

The $76 index level appears to signal at least potentially major support from the confluence of the 20 and 50 week EMAs, as well as a positive moving average cross-over (confluence).  Watch this area closely.

Momentum clearly has made a new high and the odds shift to a more bullish posture until proven otherwise.  This “until proven otherwise” would be challenged should price fail at these weekly moving averages – it would be a significant negative development.  Until then, we must take the bullish case on the Dollar.

What of the Fibonacci retracements for potential support?

Drawing the Fibonacci grid (easier on the Daily Chart) from the $71.50 price low to the price high just above $80.00 gives us the following Fibonacci Retracement Levels to watch:

32.8%:  $76.94 (roughly $77.00)
50.0%:  $75.92 (roughly $76.00)
61.8%:  $74.90 (roughly $75.00)

Once again, the $76.00 Index level becomes a multi-correlated area of potentially strong support.

That means there’s ‘play’ to this level, meaning that gold and oil should continue to rise until the Dollar tests this area and the ‘battle to hold $76.00’ begins.  Until then, the structure should hold up in a classic price retracement in an up-trend in the Dollar.


3 Responses to “US Dollar Index Structure and Support Zone”

  1. yang Says:

    if it fail to hold $76, or $75, is it a bear sign?

  2. Corey Rosenbloom Says:

    It would be an initial severe warning that the bullish camp wasn’t as strong as anticipated, as price in an uptrend and momentum impulse is expected to hold at least a 50% retracement and various support via moving averages, and if we get a close beneath these levels today or soon, it would be a threat to further higher prices and tip the odds in favor of lower prices. Today was quite volatile on the index and we’ll see where the close puts us. The $USD is an end-of-day chart in StockCharts.

  3. Anonymous Says:

    Hi Corey!

    I am a regular reader of your blog and really appreciate all your efforts. Could you please do a similar analysis of Gold prices. Thanks!