Dollar bulls just about remain in the driving seat
The US dollar index has been in a longer-term bull trend now since mid-2011, although this was punctured by a two-and-a-half-year sideways trend from early 2012 to mid-2014.
After a nine-month rally from mid-2014 to mid-March 2015, the US dollar index entered a correction phase this year from mid-March to mid-May 2015. There was some back-and-forth price action over the next month before the bull trend appears to have re-established itself around mid-June.
In the weekly chart above we can see how the index managed to hold above the 38.2% Fibonacci support in the spring and, so far in August, a smaller correction has held above the 23.6% Fibonacci support. The moving averages on this weekly chart have remained heading in a positive direction throughout, despite the more sideways trend of the price itself over the past five or six months.
Continued rate hike speculation appears to be keeping a bid to this index, with the two latest small corrections managing to hold above the 100-day moving average (the blue line below) over the past three weeks as you can see in the daily chart.
The moving averages in the daily chart do paint a more neutral picture but as long as the index can stabilise above the 100-day moving average now we can look for bulls to re-establish control as we head towards the end of the summer. You can see how the price is maintaining a gap above the upward-sloping red 200-day moving average which is also encouraging to bulls.
The two red trendlines show an upward-sloping wedge pattern. Looking at the stochastic at the bottom of the chart, we can note how the sideways trend has seen the price peak and trough with the indicator. We appear to have bottomed at the end of last week and are just beginning a recovery.
Bulls now need a push higher through 97.10/97.15 to allow further gains to unwind the oversold stochastic to target 97.60/65, then the upper red trendline at 98.30/98.35. This of course is the main challenge for bulls in the weeks ahead. Only a breakout above the upper red trendline would be considered a buy signal and a potential end to the short-term sideways action. A break higher gives us a good chance of a resumption of the longer-term bull trend to target 98.80/98.85 then 99.35/99.70 and April highs at 99.99.
Bulls will have to throw in the towel, in the short term at least, on a break below the 100-day moving average and red trendline support at 96.30/96.20. A break below August lows so far at 95.90 is likely to increase pressure to the downside and target July lows at 95.45, perhaps as far as Fibonacci and 200-day moving average support at 94.85/94.75.
Jason Sen – Technical Analyst & Trader
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