Technical Analysis of Dollar Index
As the weighted geometric mean for some of the most important other currencies of the world, the US Dollar Index gives a very good indication of the standing of the US Dollar in the world economy. The currencies included in the index are:
The Euro, with a weight of 58.6 per cent.
The Japanese Yen, with a weight of 12.6 per cent.
The British Pound, with a weight of 11.9 per cent.
The Canadian Dollar, with a weight of 9.1 per cent.
The Swedish Krona, with a weight of 4.2 per cent.
The Swiss Franc, with a weight of 3.6 per cent.
If we look at Fig. 19.19(a) we see that for the best part of August, the Index moved mainly sideways – staying in a narrow band between 73.5 and 75.5.
On the 5th of September, it moved above the Ichimoku Kinko Hyo cloud again for the first time in quite a while – closing at 75.16. The next day saw the beginning of a relatively strong bull run that lasted for the biggest part of September.
On the 4th of October, the price briefly touched 79.84 before starting to drop, closing at 78.96. Since then it has dropped below the red Tenkan Sen line and also below the blue Kijun Sen.
Right now, it is still safely above the Ichimoku cloud, but on the 19th of October, we saw the price briefly touch the cloud at 75.83 – the lowest point it has reached in more than a month.
If the price closes in the Ichimoku cloud soon, it will officially be the end of the bull run. Should it then emerge from the cloud in a downwards direction, short traders might start to look for an entry point.
Right now, the price will have to increase significantly – to above the level it reached on the 4th of October – to consider a long trade.
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