Technical Analysis of Dollar Index
The Dollar Index is, of course, an index consisting of the exchange rate of the US Dollar against a weighted basked of international currencies, including the Euro and the Japanese Yen. The USD/Euro exchange rate carries a significant weight in this basket.
Fig 1.23(a), is a chart of the US Dollar Index for the past five weeks, combined with Bollinger Bands with a Standard Deviation of two and a Moving Average of 20.
What is significant here is that the Dollar has had a rather terrible week against the group of currencies that make up the index. At one stage, a little more than a week ago, it seemed to be well on its way to 82.00, but since then we have seen a series of declines that has brought it back to just over 80.00.
This is the most significant bearish pattern we have seen in the past couple of weeks and it might well be an indication of a bear phase ahead.
The 80.00 level has acted as a pivot point recently and any drop below this point could be a sign that worse is to come.
The heavily weighted EUR/USD is also once more showing signs of an upward trend, it recently broke out of a medium term descending channel, which further strengthens suspicions that the Dollar might be heading for stormy waters.
A breakout downwards out of the Bollinger bands could potentially form a strong entry point for a short medium term trade, but for further confirmation wait for the price to drop below the recent low of 79.51.