Originally published by Guppytraders
A strong US market is usually accompanied by a strong dollar but in this case the US dollar remains stubbornly low, locked between $0.91 and $0.95. This dollar weakness helps US exports but on the reverse side, makes imports for business and consumers more expensive These are generally seen as negative impacts for domestic economic growth.
The US dollar fell below the long-term support level near $0.93 in September. It has again dropped below this critical support level. Below this support level lies a new potential support level near $0.91. This level acted as a rebound point in September and traders will keenly watch to see if it can fill this function again in 2018.
A successful retest and rebound from $0.91 creates a double bottom pattern. This is sometimes called a W pattern. The depth of this pattern is measured and used to set upside targets. The first target is a retest of the peak of the W near $0.95. This potential target is $0.99.
The potential support level near $0.91 is not strong. It is not an historical support level and this suggests potential weakness. The strong historical support level is near $0.93. Starting 2017 August the US Dollar Index has oscillated around the $0.93 value. The lower edge of the oscillation is $0.91. The upper edge of the oscillation is near $0.95. If the future rebound from support near $0.91 fails to move above resistance near $0.95 then this oscillation pattern will develop into a sideways trading band or consolidation band.
The Guppy Multiple Moving Average (GMMA) indicator shows a strong downtrend remains in place. The rally towards $0.95 was near to the value of the lower edge of the long term GMMA. The Dollar retreated from this strong resistance feature. The long term GMMA shows no signs of compression and this suggests the downtrend continues to develop strength.
A change in the downtrend is signalled when the long term GMMA begins to compress. Any continuation of political instability in the US means the dollar could potentially dip below the lower edge of the trading band near $0.91. The weekly chart shows there is no strong support or consolidation areas between long term historical support near $0.93 and $0.85. This suggests that any sustained move below the new support area near $0.91 could quickly fall to $0.85. This is the most significant feature of the US Dollar Index chart.
Traders will short the US dollar if support near $0.91 is not successful. We use the ANTSYSS trade method to extract good returns from these potentially fast movements.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.