In early September the Dollar Index broke into new ’09 lows as traders rediscovered an appetite for risk. As fears of an economic meltdown faded, the Dollar lost some of its safe haven buying and traders started looking for returns. What’s coming up for the Dollar?
Below is the daily chart for the December Dollar Index. The upper blue horizontal line is the low for August. The breach of this low helped push DX to its low. At the same time, note the lower blue line around 73.33. It roughly lines up with the low of the day the August low was taken out. It then was resistance on 9/14 and 9/15, then again on 9/21.
Monday’s (9/21) push to resistance then led to a selloff, culminating in a new low on Wednesday. Wednesday ended in a doji, however, indicating the bears were unwilling to sell at the new lows.
Yesterday saw a strong rally that took DX back to the 77.33 resistance. In doing so, it pushed momentum to a short sale level. (Read more about using momentum here.) The combination of the momentum short sale signal and resistance led to today’s selloff.
Looking ahead, the Dollar may be working on turning higher. MACD is trying to turn higher, and they’re not moving too far from resistance. The midpoint of this week’s rally is 76.665; holding that should provide support. Breaking the 77.33 resistance area (also the price level for the 20 day EMA) should bring in further buying.
Looking at intermarket relationships, yesterday’s action may tell us what to expect if the Dollat rallies, as stocks, gold, silver and crude oil all staged big selloffs as the Dollar rallied. (Or is that if crude and stocks sell off, the Dollar will rally?)
Is it bottoming?
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