November 15, 2009: Three factors are stacking the odds in the favor of bulls on the dollar futures contract. Prices are near support, the down trend line is broken and the commodity channel index shows positive divergence.

A look at the charts will show that the dollar futures contact has broken the down trend line and closed above it three weeks in a row, despite the sell of the last two weeks. Prices are also near a strong support area as shown by the blue box. Prices had rallied from that area in 2008 and can catch a bounce again.

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 110 we’d wait for a close above minus 100 before going long.

Interestingly, the cash dollar index too has broken its down trend line and is also showing positive divergence on CCI. However, the index has not reached the strong support area that the futures contract has touched. For more information on the cash index read this article:  Caution warranted for spot dollar bears If the cash index falls, we may see the futures contract fall too. On the flip side it’s possible for the futures contract to rally and take the cash index up in sympathy.

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