November 1, 2009: The downtrend line of the dollar is still intact despite the current bounce and the index has not reached a key support area.
A look at the chart shows that the the down trend line of the dollar is still in place and it’s still to early to predict if the sell off in the greenback is over. The down trend line is shown in white on the chart below.
The fact that the dollar index rallied from no clear area of support on the weekly charts makes this rally doubtful. One could attribute the rise in the dollar to the fall in the stock markets. The S&P 500, the NASDAQ 100, the Dow and the Russell 2000 have all fallen. When the US stock markets fall the dollar index rallies as people move from risk to safety of the dollar.
Technically speaking the dollar index should reach the area marked by the blue box on the chart. This is an area of support for the dollar, which led to a rally in late 2008. We would wait for the dollar index to reach the 72 level before going long. However, a break of the down trend line can also be bullish for the dollar. If we go long on the dollar on the break of the trend line, we’d watch the 74.50 area. If we have a close below that area the dollar index could head lower.
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