US Dollar hits strong 4 year channel trend line resistance.
The US dollar has been in an extremely good Bull run since May 2011. We spotted the potential for this move earlier in the year and I have written about this in a few articles for Intertrader in recent months. However it is now time to review the charts as we run into strong four-year trendline resistance.
The daily chart below shows the most recent powerful leg higher which started in early May of this year. After a pause for breath in early October we have raced higher again in the last three weeks with the dollar index reaching a peak of 88.19.
Friday’s candle was not quite so positive, as we made a new peak but failed to sustain those gains and closed quite a lot lower on the day. It’s Monday morning at 4 AM and as I write & we are edging a little lower again trading at 87.38.
To get a more accurate picture we need to look at the longer-term weekly chart below:
This clearly shows how the US dollar index has been trading in a bullish channel for almost 4 years. You can see how the strong run this year has taken us right up to test the upper trendline. In fact Friday’s peak perfectly touched the upper trendline. This was clearly a target for longer-term players who were ready to exit their positions and may have even reversed into shorts. Although I never pay too much attention to overbought indicators, because markets can stay overbought for a lot longer than margin can remain my account, we have been overbought for such a long time now that a correction from this important trendline resistance looks extremely likely. Although I do think this is only a correction in a longer-term bear trend I would not rule out a dip to at least the 86.00 area. If we were to fall as far as the 84.75/55 I would suggest this is likely to be an excellent buying opportunity with a good chance that the Bull trend will resume from here. Not only is this the peak for 2013, but it is also excellent longer-term Fibonacci support, coupled with the low of the bout of profit-taking that we saw in early October of this year.
Gold – December contract.
I have to finish with a note on gold, always the subject of wide discussion in financial markets. Gold has of course taken quite a bashing over the past two years, without doubt a victim of the recent dollar strength. The monthly chart below goes back to 2008 when gold began its second leg of the incredible Bull run from a low of 681 to a peak of 1923. I’ve used Fibonacci retracement lines here to identify important support levels. You can see that the 61.8% Fibonacci support at 1155 was breached last week when we get to a low of 1131 on Friday.
However this triggered very strong buying on good volume and we quickly recovered all of the week’s losses in just two hours. This buying has clearly created quite a short squeeze. The weekly close above the important longer-term Fibonacci support at 1155 I believe is a very positive signal. However as I write we have not quite managed to break back above the 2013 lows at 1179/80. If we can manage to close above here for a couple of nights this week, this will help to confirm my more positive short-term outlook for gold. Although it is too early to say whether this is a longer term bottom and a change of trend, I would not be surprised to see gold recover to the 1230/40 area and perhaps even as far as 1285/95 into the first half of next year.
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