|The U.S. dollar index ($USD) has been in a strong downtrend the last few years, but you probably already know that. However, what you may not know is that the index is now approaching a key development point: its trading range has narrowed and the index is stuck between two-year resistance and seven-month support, as shown on the the long-term chart.|
|Figure 1: U.S. Dollar daily chart.|
|Graphic provided by: Stockcharts.com.|
|Notice how the September '02 downtrend line (around $89.00) has capped prices the past two years and continues to act as resistance right now. In the meantime, February's uptrend line (around $88.00) has been acting as support most of this year. With only a dollar difference - no pun intended - between support and resistance, something will have to give soon.|
Figure 2: Six-month chart of $USD.
A six-month chart of the index (Figure 2) is painting the same picture. July's uptrend line (bottom of the blue triangle) comes into play right above the $88.00 level, which coincides with February's uptrend line. Additionally, notice that the index breached the bottom parallel line of the black pitchfork in August and has used the sliding red parallel line (or warning line) as support since then. Like the other two uptrend lines, this warning line has converged around the $88.00 level, making it significant from a support standpoint.
|On the other hand, the top of the blue triangle (June's downtrend line) has converged around the $90.00 level. Though this price level is above the September '02 downtrend line, resistance here will have to be taken out if a trend reversal is going to be confirmed. |
In summary, a breakout above the $90.00 level would be extremely bullish, as the two-year downtrend line would be broken. However, a breach of support around the $88.00 level would likely indicate further weakness and a continuation of the long-term downtrend. I would watch these price levels carefully to determine which side of the market to be on when things play out.
|Glen Allen, VA|
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