Dollar Supports… For Now

Sep 25, 2008: 6:23 PM CST

In a testament that classic technical analysis is still ‘working’ in this environment, the US Dollar Index supported at the $76.00 level, which I highlighted in prior posts “US Dollar Index and Support” and “Dollar Index Targets Achieved Today“.  What’s likely in store now and has the structure changed?

Earlier, I indicated that the $76.00 level had Fibonacci retracement support, as well as weekly and daily moving average support.  For now, it has held as expected, but we’re already nearing upside targets and the price could turn back down after its expected pause.

Let’s look back (reference the earlier blog posts) and see what the chart looks like and how it is playing out.

US Dollar Index Daily:

Technically – and until proven otherwise – the Dollar is on an impulse swing up.  However, it’s worth noting that the recent price swing down was significant (quick) and could be the start of a new motive impulse down, such that these past three up-days may be part of a bear flag retracement pattern, especially if we keep rising at a 45 degree angle as we are.  It could even be a “dead cat bounce.”

Either way, let’s look at a couple of potential resistance confluence points.

The next obvious possible resistance would come in at the declining 20 day EMA at $77.60, which also happens to correspond roughly with the 38.2% Fibonacci retracement of the recent down-swing at $77.65.  Watch the $77.63 level closely for signs of possible weakness.  Should we blow through this zone to the upside, the 50% Fibonacci retracement comes in at $78.15.  There are no obvious MA Resistance zones beyond the 20 day EMA.

If this structure does wind up forming a bear flag, look for a retracement to these levels and then determine if a ‘measured move’ trade sets up on the chart.  Also, if price heads lower, carefully watch the $76 level again – there’s a lot of confluence of support at that level that – if broken – would be significant.

US Dollar Index Weekly:

Not much to show on this chart, other than the $75 to $76 level is a critical Index support zone, both from EMA confluence and Fibonacci retracements.  Notice how the index ‘stuck’ the $76 level at the weekly 50 EMA.

And, as indicated earlier, Oil and Gold retraced a bit this week, but we need to keep constant focus on these inter-related markets… and now a careful eye on the News and Government action as it develops… and changes moment by moment.

1 Comment

One Response to “Dollar Supports… For Now”

  1. Corey Says:

    Comment by Richard InBellingham via email (published with permission) – my thanks for his comment:

    The direction of all wealth, except the Yen, FXY, is down.

    The US Dollar, $USD, will fall in a death spiral lower with all currencies.

    Even though gold could easily fall to $850, $825, $800 or $775, with a falling EURJPY, I recommend diversification of investment in gold in four locations “immediately”: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins.

    Last week the SEC announced a ban on short selling of the financial companies, and on Friday we had the Mother of all short covering rallies.

    Today, I received the proceeds of the SKF trade I was forced out of, at sizeable loss. I used that and all available cash to buy gold and silver coins.

    One can use the linked article for my bearish appraisal of the current stock market.