Dollar Index Technical Update – Week of 22nd 26th October
- The USDX printed a key reversal day on Thursday after closing on Wednesday under range support. Market sentiment took a turn for the worse with the 25th anniversary of Black Monday approaching (this anniversary came on Friday) and subsequent below par earning’s data from the US; the dollar gained accordingly as the market moved towards a perceived safer haven.
- A lower close on Wednesday may also have been viewed by technical analysis traders as a trigger to enter on a break under the bearish flag pattern; the subsequent key-reversal, and move back into the range, will see a squeeze on any remaining short players who are holding positions heading into the weekend despite the swift reversal. The key reversal can also be viewed as a two day Pin Bar pattern.
- Price came close to key 78.40 – 78.70 range support lows (within 30 pips) after breaking under the bearish flag. This key area, comprised of price structure and a 50% retrace, has held once again as support – see the weekly dollar index chart below to see the confluence area.
- The above comes as the EURUSD has retraced most of the weeks earlier gains and closed just above the 1.3000 area. Cable closed the week around the key 1.6000 level.
- Large Speculators trading futures contracts traders on the CME (Chicago Mercantile Exchange) had cut bearish EUR wagers according to the latest COT report update from the CFTC (Commodity Futures Trading Commission); remember that the euro makes up 57.6% of the dollar index weighting. This lagging report does not however capture the mid week reversal and subsequent pro-dollar positioning. Nonetheless, the US dollar open short position increased by 22% on the prior week.
- In the near term the 80.00 range highs have provided resistance during recent trading and may do so again if the dollar continues to find a bid. We will continue to monitor support in the 78.40 – 78.70 area should the USDX once again move lower.
