Has the US Dollar Index bottomed out?
I start this week’s article with an important point to note on the US Dollar Index. We are in a one-year bear trend as we sink from 103.82 to a low this week at 90.11. I am always a little wary when I see extreme speculative positions and my understanding is that there are such long positions in the euro and short positions in the US dollar. There is always a risk of a shock move in the opposite direction to flush out this extreme positioning, so I’m watching carefully for any reversal signals.
The weekly US Dollar Index chart below shows how we have tested two important support trendlines at the bottom of the chart. The more important longer-term trendline dates back to mid-2015, so it is almost two-and-a-half years old. The older the trendline, the more significant it is to traders. You can see how we bounced aggressively off this trendline yesterday. The shorter-term trendline dates back to May 2016 (20 months), lying just above at 90.70/90.80. We are hovering around this area as I write.
The daily chart below shows three bullish candles in the form of a hanging man, followed by an inverted hammer, and what would be a very bullish engulfing candle today if we close above 90.82. This would also see us back above the 20-month trendline support for further bullish confirmation.
If this does mark the low, as I suspect, our upside targets are 91.30 then resistance at 92.00/92.10. On further gains we meet very important resistance at 93.30/93.40. A break above here would be a strong buy signal.
Bitcoin outlook is negative
Last week I focused on Bitcoin. The cryptocurrency was finding support around the $13,000 area, but I saw negative signals and felt we would continue lower. I wrote: ‘I see no reason, therefore, why we cannot break below $11,000. We would then test support at the blue 100-day moving average and four-month trendline at $10,200/10,150. We may initially get a knee-jerk reaction from this level but I do not see it as a strong enough area to buy into longs. I do see a strong chance the price will eventually break $10,000 to target the mid-$8000 area.’
Bitcoin has broken lower this week as expected to bottom exactly at the blue 100-day moving average and four-month trendline support at $10,200/10,150 as predicted. We have seen that knee-jerk reaction of the support level with a bounce to $11,800 but I still see risks to the downside.
A break below the psychologically important $10,000 level is likely to target $9600/9500, $9250 and probably $9000. These are targets and not supports! We do meet strong support at $8700/600. This is the big chance for bulls to turn the market around. Place stops below $8000.
Technical Analyst & Trader
For more information, trading education and offers visit InterTrader
The content of this article is the personal opinion of the author and not InterTrader. You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.