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Dollar index continues to hold four-year trendline resistance

I looked at the dollar index earlier in the month as we approached this important trendline resistance and it is worth revisiting the subject, because we have spent the whole of November testing this trendline, but failing to break above it, as you can see in the monthly chart below.
You can also see at the bottom of the monthly chart, that we have become quite overbought on the stochastic oscillator. There is a potential negative warning there as the lines start to cross over. The red line you see is the 200 month moving average which is at 89.89 as I write and this also ties in with important longer-term Fibonacci resistance around the 89.70 area. It’s clear therefore that we are approaching quite a lot of resistance when you also factor in the highs for 2010 at 88.70. The high for this month so far is 88.44, which was hit at the start of trading this week.
A look at the weekly chart below gives perhaps a slightly clearer picture of how the index is being held by this important longer-term trendline resistance.
The weekly chart is also overbought but has been now for several months. Of course markets can stay overbought for a very long time in a powerful Bull trend and it is never worth entering short positions on that basis alone. However this does add to the strong chance that we see a correction in the dollar index into the end of the year.
The daily chart below does at least emphasise how the trendline has caused mostly sideways trading action throughout the whole of November, so far.
I will finish with a quick look at a couple of dollar pairs to see if they’re showing any signs of turning. The EURUSD chart below is showing potential early signs of a bullish double bottom pattern. You can see the two lows in November match perfectly at the 1.2357 level. We also have quite positive candle formations at these lows, which helps give more confidence to the theory of that bullish double bottom pattern.

The USDJPY has hit the headlines lately having been in such a strong bullish trend since late 2012. In just over two years the dollar has rallied from around 77.50 up to 118.96 last week. If my calculator is correct that’s a gain of more than 50%. You can see from the daily chart below that we have stalled a little in the last few days, as we battle severely overbought conditions. Whilst I don’t see any signs of a topping pattern or anything to indicate we are about to hit heavy selling pressure, considering how overbought we are after such a strong move a little bit of profit-taking over the next couple of weeks would not be a big surprise before the end of the year.

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