The $ index has above broken longer term resistance at the Nov high at 88.45, to levels not seen since April 2006. However, other fx markets have not confirmed the new $ highs, technicals have not confirmed the new highs either (see bearish divergence on the weekly macd at bottom of chart below), while in the nearer term, the market appears to be forming a topping pattern (possible rising wedge, see shorter term below).
All of these factors raise the risk for a bearish “false break” of the 88.45 high (breaking above but reversing and closing back below), and potentially forming an important top (see “ideal” scenario in red on weekly chart below below). So in the bigger picture, it’s not seen as a good time from a risk/reward standpoint to chase the market higher from here and instead, would be looking for signs of a potentially important top to short for the longer term.
Nearer term as mentioned above, the market may be forming a rising wedge for over the last month. These are generally seen as topping patterns that resolve sharply lower, and suggests an eventual downside resolution of the base (currently at 86.00/10). Note too that these patterns break down into 5 legs with this recent strength potentially that final leg (see numbering on daily chart/2nd chart below), and increases the possibility that the downside resolution may be nearby (currently at 89.00/10, see “ideal” scenario in red on daily chart/2nd chart below). For now, would short here (currently at 88.85) and initially stopping on a close 89.40/50 to allow for a temporary break above the ceiling of the wedge. Support before the base of the wedge is seen at 87.30/40.
