What next for the dollar?
As we know the dollar has been in a strong bull market ever since the second quarter of 2014. In fact you can pinpoint the start of the bull market down to the second week of May last year, which means we are approaching the one-year anniversary. An excellent time to take a close look at the charts, after the recent corrective move to the downside. Is this just the start of a more significant bear move? Or a healthy correction in a longer-term bull trend? Let’s examine.
First some background. The dollar index has had a very strong rally from a low of 78.90 in May 2014 up to a peak of 100.39 in the middle of March 2015. After a sell-off into late March/early April we staged a good recovery up to 99.99, falling just shy of that March peak. This double top pattern triggered more significant losses into the end of April, ending the month right on its low at 94.40. There is good reason to believe that this can mark a low for the three-week correction.
The daily chart above clearly shows six days of heavy consecutive losses, with the dollar index tumbling from 98.42 to 94.40 on the last day of April. Yesterday we tested the 100-day moving average at 94.90/94.85 and the one-year bull trendline just below at 94.70/94.65. It was very significant that we closed the month below these two important support levels. However, bulls have one last chance to regain control of this market, with a weekly close tonight above 95.00.
It’s not surprising that the market is severely oversold after such a sharp correction. It may not feel like it to short-term traders, but we are still in a longer-term bull trend and have reached an important downside target and support level. For trend traders this is a golden opportunity to jump back into longs at a major support level. It is 7am UK time as I write this article and at the moment we are trading at around 94.90, therefore just holding above the bull trendline. If we can stage a recovery we meet our first important resistance level at 95.45/95.50. A push above 95.80 would be encouraging for bulls and we could go on to target the 96.40/96.70 area next week. A push above here should confirm that the bull trend has resumed and the correction has ended, but bulls will face the next challenge at the resistance level of 97.35/97.40.
A weekly close tonight below the one-year bull trendline at 94.70 however would be a worry for bulls and a break and close below the April low at 9440 would signal potential further losses into May. We would then need to watch the mid-February lows around the 94.00/93.80 area as a break lower would risk a test of the February low at 93.25. A break below here could accelerate losses to target a major support level at 92.50. This would be the next big longer-term opportunity for bulls to regain control of this market.
Jason Sen – Technical Analyst & Trader
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The content of this article is the personal opinion of the author and not Intertrader.com. The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest. Nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.