An interesting technical picture is building on the dollar index daily chart, following last week’s five consecutive down days, which mirrored the previous week of five consecutive up days. So what are we to make of this price action over the last two weeks for global forex markets and the US dollar in particular.
The US dollar index closed on Friday at 79.06, with a small doji candle, bouncing off the low of the day at 78.806, and as such finding support at this price level once more, a level which has triggered a recovery for the index on two occasions over the last few weeks. The index now appears to be developing a platform of support in this price region, and despite the sharp sell off for the dollar last week, the doji candle of Friday, in tandem with the potential support level, is signalling a possible reversal higher once more for the dollar. Indeed in early trading this morning, the index is currently trading higher at 79.504, having opened the forex trading session gapped up, but for any momentum to be sustained, we need to see a break and hold back above all three short term moving averages once more, which are currently tightly bunched in the 80.000 region.
A clearance at this level, coupled with a move through the potential short term resistance between 80 and 81.50, would then open the way for a further attempt to breach the 200 day moving average, now sitting in the 81.667 region, where previous rallies have been capped by this key indicator. Indeed for any longer term rally to develop for the US dollar, we need to see a break and hold above this important technical area, and if cleared, then we can expect to see a sustained and longer term move higher for the dollar index, with consequent weakness in major currencies as a result.