November 14, 2009: The dollar index broke its down trend line on the weekly chart and the commodity channel index (CCI) shows positive divergence, putting bears on notice.

For three weeks the cash dollar has closed above the downtrend line shown on the chart. This may be early signs that the dollar may see at least a short term rally. The greenback is also in close proximity to areas of support, from where it can rally.

The yellow horizontal line in the 74 area was previous resistance and could now turn to support. The area marked by the blue box is a very strong support area where we would be comfortable going long on the dollar. However, prices may rally before reaching that level and a reason is that the futures contract on the dollar has already reached its major support area. For more information on dollar futures please read this article: Dollar futures at strong support

Also notice that the CCI is showing positive divergence, which is a bullish sign. Positive divergence happens when prices make new lows but CCI makes higher lows, which is the case with the dollar. Traders using CCI consider the indicator closing above negative 100 as a signal to buy. As the indicator is now at negative 107 we’d wait for a close above minus 100 before going long.

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