I am sure you all know by now that the Dollar Index has popped above key resistance today at the 76.25 level. A conservative technical analysis technique projects out a target upside to the 80.00 level. This is based on a very simple concept, I learned in the Thomas Murphy Book Technical Analysis of the Futures Markets. I highly recommend it to you all.
So, its very basic, but those are the best chart patterns, I believe over time. If I had more time, I could show you many different instances of how effective looking at a 50 percent retracement is a viable strategy. And if you look at any of my older entries, you can see where I have written about those before.
It keeps with the old adage, KISS, Keep It Simple, Stupid… 🙂
So, looking at a chart of the DXY, we have a high back in March around 89. At that time we broke down off the highs to the 83 level, for a 6 point down move. We then rallied how much? Approximately 3 handles (1/2 way back) to the Mid April Highs around 86 1/2. I am using rough approximations, but if you like you can pull up the exact highs and lows, but for this illustration, this is simpler.
In any event, the DXY broke, gently but consistently from the April highs around 86.50 down to our recent lows at the 74.50 area.. A 12 point downmove. Now that we have broken above trend line resistance at the 76.25 level with today’s pop up to the 76.73 high, now we have to look at a potential upside target. Notice I say potential.
In any event, if you take 1/2 of the 12 point down move, you get… surprise!! 6 points. So Adding 6 points to the recent low support at 74.50 area projects out to the 80.50 area as an intermediate term target for an up move.
There you have it. Basic Technical Analysis, 101. Seems too simple doesn’t it? But look at some charts yourself. Measure moves from major highs to major lows. The 50 percent area is an attraction on any correction.
Its just a natural phenomenon. Does it work all the time? Heck no, but it works often enough that you’d be silly to ignore it.
Good Trading
