US Dollar Index Nears Moment Of Truth

04/04/05 12:06:27 PM

by Arthur Hill

The US Dollar Index has firmed over the last few months, but has yet to provide the spark needed to change the long-term downtrend.

Security: $DXY
Position: Hold

The trend is clearly down on the weekly chart (Figure 1). First, the index remains below the trendline, extending down from September 2002. Second, it has been nothing but lower lows and lower highs since 2002. For the trend to change, the index must break above the September 2002 trendline, forge a higher low, and record a higher high.

The index firmed over the last few months and broken support turned into an important resistance area. Note that broken support at 92 turned into resistance a few months later (gray arrows). The same thing is happening at 85. This level marked support in January-February 2004 and turned into resistance in February 2005. Further, the resistance zone around 85 was confirmed by the September 2002 trendline.

Figure 1: US Dollar Index, weekly chart. The trend is clearly down on the weekly chart. First, the index remains below the trendline, extending down from September 2002. Second, it has been nothing but lower lows and lower highs since 2002.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

The index is showing signs of life on the daily chart (embedded). A falling wedge followed the January-February advance (magenta trendlines). Even though the falling wedge retraced more than 62% of the prior advance, it stopped short of the prior low and formed a higher low. These patterns are typical for corrections and the surge above trendline resistance signals a continuation higher.

The index has since consolidated just below the February high at 85.39 and a break above this high would be most positive. Not only would this forge a new reaction high, but it would also break the September 2002 trendline. The issue of resistance around 90 still poses a problem (red oval) for long-term bulls, but a move above the February high should be taken as a bullish sign.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title:	Editor
Company:	TDTrader.com
Address:	Willem Geetsstraat 17
	Mechelen, B2800
Phone # for sales:	3215345465
Website:	www.tdtrader.com
E-mail address:	arthurh@tdtrader.com
Traders' Resource Links
TDTrader.com has not added any product or service information to TRADERS' RESOURCE.