US Dollar Weak Consolidation
Daryl Guppy | Jun 21, 2017 12:27
Originally published by guppytraders.com
The US dollar is developing support near $0.97. However this support level is weak so investors prepare for more downside activity.
We use chart analysis to identify high probability support and resistance levels. We use chart analysis to identify points where there is a higher probability of a shift in the balance of probability that leads to a trend change. The dollar index chart has been dominated by a very broad sideways trading band that started in 2015 March. The upper level of the band is resistance near $1.00. The lower edge of the band is support near $0.93. The dominant feature on the weekly Dollar Index chart was the broad between $0.93 and $1.005. This trading band has dominated Dollar Index behaviour since 2015 January. The move above $1.005 was very important because its a breakout from this prolonged 22 month sideways trading pattern. The mid-point of the band is around $0.97.
When price moved above $1.00 there was a good probability the price would continue to trend upwards. This did not happen.
Normally price moves in rallies and retreats between the upper and lower edge of the trading band. With the Dollar Index, the price has oscillated around the midpoint near $0.97. The result is rally and retreat behaviour that does not test the support and resistance levels.
The Dollar Index chart shows a weak head and shoulder reversal pattern. Its weak because the left shoulder is a consolidation rather than a clear change in trend. The right shoulder is well defined with a clear change in short term trend.
However, we can apply, with caution, a head and shoulder projection analysis to the Dollar Index. This sets a downside target near $0.95. This is the first level where traders will watch for a consolidation and rebound pattern to develop. This level is above support near $0.93 but a rebound from $0.95 is consistent with the way the dollar index oscillates around the central midpoint of $0.97.
The Dollar Index is now a more volatile market with less sustainable trend development. Traders prepare this oscillation behaviour where the value rallies and falls, but does not test the upper or lower edges of the trading band.. This is the current environment with a tight oscillation around $0.97.
The overall trend is down so there is an increased probability that the dollar will test support near $0.95. The political instability in the US means the dollar could potentially dip as low as the lower edge of the trading band near $0.93.
We use the ANTSYSS trade method to extract good returns from these movements.
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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.
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