US Dollar Index closing in on 2015 highs
The US dollar has rocketed since the Trump victory with promises of huge spending on infrastructure threatening higher inflation and interest rates. The weekly chart below shows the US Dollar Index reaching a peak so far this week at 100.22.
The important resistances to note are the early-2015 peak at 100.39, the late-2015 peak at 100.51 and the trendline formed by joining these peaks at 100.65/70.
I’m thinking we have come a very long way on speculation that Trump will be true to his word or will even be able to carry out all his promises next year. It looks a bit early to be fully pricing in such a huge stimulus package.
So, with that in mind, we are very close to the important resistance band at 100.39 to 100.65/70.
If we do not make it through here we remain in a 20-month sideways trend (as I think we will). For some short-term downside targets we can look at the daily chart below.
The first short-term target and support is at the 23.6% Fibonacci level of 99.20. This ties in nicely with the October high and also last week’s high at 99.13/12. There are therefore good reasons to expect this to work effectively on the first test.
Further losses however would then target 98.60/50 before a confluence of Fibonacci support at 98.30/25. Though with no other signs of strong support from previous price action we may see less of a bounce from here. If we continue lower, look for a test of the July high at 97.59/55.
If you draw your own Fibonacci levels from the November low at 95.89 you will see we also have a short-term 61.8% Fibonacci support right at this level of 97.59/55.
Where do we target on a break above 100.65/70?
Let’s take a look at the monthly chart to get a longer-term perspective. To trust the breakout I would need to see a daily close above 100.65/70. Ideally we’d also get a weekly close above for confirmation. (I’m seeing stop-hunters succeeding in actively pushing forex markets through important levels before the price recoils and reverses in the last month or two.)
The initial target on a successful break targets important longer-term 64.8% Fibonacci resistance at 101.45/50. We have two monthly candles back in March and April 2003 (the last time we were at these levels) which spiked up to 101.81/102.15. So these will be the levels to beat if the gains are to accelerate towards the mid-2002 low of 103.54.
Technical Analyst & Trader
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