Originally published by Guppytraders.com
After a rush to $1.04 the dollar index has developed a retreat and a series of tests of support near $0.99. The current narrative points to the defeat of President Trumps Obama health care repeal act but that narrative often misses the point. The Bill was not defeated by Democratic. It was defeated by the far right Republicans who believed the bill did not go far enough. Rather than diminishing Trumps authority it gives him a green light to bring back an even stronger repeal bill that is more consistent with his campaign policy statements.
And that’s bullish for the Dollar Index. When the market enthusiastically welcomed Trumps election it did so, in part, because the market believed he would implement his policies. That lifted the dollar to $1.04. A ramping up of Trump campaign policies in legislative action will again act as a bullish factor on the Dollar Index. The dollar index charts put this activity into context.
The weekly chart provides the context for the support and resistance features. The dominant feature on the weekly Dollar Index chart is the broad trading band between $0.93 and $1.005. This trading band has dominated Dollar index behaviour since 2015 January. The move above $1.0005 was very important because its a breakout from this prolonged 22 month sideways trading pattern.
The subsequent failure of this support level showed short term weakness, but not trend weakness. It’s the second dominant feature on the dollar index chart that explains why.
The dollar index chart has a well established up trend line. It starts from the low near $0.92 in 2016 May. The position of the trend line is confirmed with rebound activity in 2016 August to October, and again in November. This is a well established and tested up trend line that shows consistent bullish pressure.
The current value of the trend line is near $0.99. The current value of recent temporary support for the dollar index is also near $0.99. This combination of two support features suggests that the dollar index will find strong support near $0.99 and use this as a rebound rally point for a continuation of the long term uptrend.
These same support and resistance features are used to set both short term and long term Dollar Index targets. The first target is the long term resistance near $1.005. The next resistance level is near $1.04 where the dollar index paused in the initial Trump propelled breakout. The longer term target is near $1.08 and is calculated using classic trade band analysis.
Classic trading band chart pattern analysis measures the width of the trading band. This value is projected upwards from the $1.005 resistance level. This gives an upside target near $1.08. The $1.08 level provided a consolidation support level in 2001 and 2002.
The uptrend rally did not continue as strongly as we thought, however the uptrend remains well established.
Traders prepare for a rally rebound and uptrend continuation. We use the ANTSSYS trade and analysis method to identify the opportunities as the rally rebound develops from the trend line.
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.