The dollar bear trend just ended on Friday. The daily chart below shows the 14-month US Dollar Index bear trend neatly outlined by two downward-sloping trendlines that map the descending channel.
It is important to note we have a double bottom with a very bullish engulfing candle marking the second low. This pattern has perfectly held the 16-month lower trendline with a positive divergence showing on the slow stochastic at the bottom of the chart.
The weekly chart below shows the whole of the bull move from mid-2011 to the peak at the very end of 2016. It also shows how we have corrected exactly 50% of that move at the start of 2018. This support holding, with the bullish arguments above and a weekly chart that is clearly oversold, signals the resumption of the bull trend.
EUR/USD makes up the majority of the US Dollar Index. So we need to see confirmation of a potential top for this 14-month bull run. The monthly chart below shows the pair clearly topped exactly at important longer-term 38.2% Fibonacci resistance. This is coupled with the 100-month average in the mid-to-low-1.2500 area.
We can zoom into the weekly chart to see how the pair topped exactly at the Fibonacci resistance. The bigger picture demonstrates how the 14-month rally has only been a bear trend correction and not the start of a new bull trend – not yet anyway. Note further resistance from the green 500-week moving average at 1.2720.
The daily chart below shows a clear negative double top. We see peaks in January and February marked by negative candles, as the longer-term resistance was strongly rejected on both tests. A very clear longer-term sell signal. You can try a low-risk short position, with stops above 1.2600.
If we are about to witness a trend change for the US dollar it is also interesting to note that the US 10-year T Note has just bounced exactly at the mega-important longer-term 34-year trendline support. All those traders watching their daily and weekly charts are missing some crucial information as they focus on the 18-month bear trend. See the monthly chart below.
Gold has also rejected an important longer-term resistance area when measured against the US dollar. The weekly chart below clearly shows a top at exactly the four-year trendline. This sits just below equally important longer-term 38.2% Fibonacci resistance at $1379. These barriers proved to be too much of a challenge for bulls.
The gold daily chart below also shows a clear rejection of the resistance area. We see extremely negative candles forming at both peaks of yet another double top pattern.
GBP/USD is less negative but still shows how we rejected the 50% Fibonacci on the weekly chart. The pair has already turned lower and is trading back within the one-year trend channel. We will see if the lower trendline is tested in the weeks ahead.
Right now USD/CAD is looking negative, so this pair goes against my theory of a weaker US dollar. Bulls need a break above 1.2700 for a strong buy signal.
Technical Analyst & Trader
The content of this article is the personal opinion of the author and not InterTrader. You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.