The US Dollar Index has been trending higher since early May. This Great Graphic, created on Bloomberg shows, that it has been successfully tested several times.
It appears set to be re-tested in the coming days. It comes in near 94.80 today and rises a little more than two ticks a day to finish the week near 94.90.
Technical indicators, like the RSI, MACDs, and Slow Stochastics suggest there is reasonably good chances that the trend is violated.
We see two main scenarios. The more benign of the two is that the violation is a function of a broad sideways movement. In this case, the immediate target is 94.45 the low from September 8 upside reversal. Below there, is the congestion from the second half of August in the 94.05-94.25 area.
The other scenario warns of deeper losses. It notes that the pullback in the second half of August already completed the 61.8% of the run-up from the early May low (~91.90) to the late-July high (~97.57). Under this scenario, the Dollar Index gains since mid-August was a correction of the down leg from late-July. The late-August high and last week's high stalled near 96.25, a corrective retracement target. The risk is a return to the 92.00-93.00 lows from Q2.
Opinions expressed are solely of the author’s, based on current market conditions, and are subject to change without notice. These opinions are not intended to predict or guarantee the future performance of any currencies or markets. This material is for informational purposes only and should not be construed as research or as investment, legal or tax advice, nor should it be considered information sufficient upon which to base an investment decision. Further, this communication should not be deemed as a recommendation to invest or not to invest in any country or to undertake any specific position or transaction in any currency. There are risks associated with foreign currency investing, including but not limited to the use of leverage, which may accelerate the velocity of potential losses. Foreign currencies are subject to rapid price fluctuations due to adverse political, social and economic developments. These risks are greater for currencies in emerging markets than for those in more developed countries. Foreign currency transactions may not be suitable for all investors, depending on their financial sophistication and investment objectives. You should seek the services of an appropriate professional in connection with such matters. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete in its accuracy and cannot be guaranteed.
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