Resumption of the US dollar bull trend
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
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