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TECHNICAL ANALYSIS


Sense On The Dollar

09/02/09 08:53:28 AM
by Austin Passamonte

Here's the near-term price direction for the US Dollar Index.

Security:   $DXY
Position:   N/A

The proverbial hub of which all financial markets spoke away from is definitely the US Dollar Index. This pairing of the USD to a basket of foreign currencies plots the relative value for the world's undisputed safe-haven currency relative to all else. Gold and other base metals, crude oil and other energies, commodities, stocks, and bonds all dance to the tune that the USD hums.

FIGURE 1: US DOLLAR INDEX, WEEKLY
Graphic provided by: TradeStation.
 
In Figure 1, the weekly view of the $DXY, we see where low-to-high swing from July 2008 through March 2009 has been retraced exactly 62%, at which the index currently rests. As a matter of fact, price action has magnetized there for the past six weeks. The USD is clearly coiling in prebreakout fashion, with the direction as yet unknown.

FIGURE 2: US DOLLAR INDEX, WEEKLY
Graphic provided by: TradeStation.
 
If we snap two different Fibonacci projection measures at the most recent 1-2-3 swings in the same weekly chart, it shows an overlap of studies near the 72-71 zone. That happens to envelope last year's April-July sideways congestion before the USD soared while the world markets collapsed. See Figure 2.

If there is to be a stock market, and for that matter the retest of March 2009 extremes for the global markets, the $DXY will not trade to that 72-71 zone. As a matter of fact, it'll lead all other markets on that inevitable journey. A quick trip to the 76 area could be the trigger of global corrections. But there could be a continuing slide toward lower levels, with a continued rally for all other markets alike.

If the DXY holds low support and rallies back up to recent highs, it obviously means all other markets are in trouble. Right now, the USD is not being sought for safe haven, in fact, its decline (or even demise) could lead to anything but. Meanwhile, a cheap US dollar could mean expensive stocks and commodities. The USD has hovered near a pivotal mark for the past six weeks, and it's not likely to remain there. Decision time draws near -- which in turn will decide the fate of all other markets.



Austin Passamonte

Austin is a private trader who trades emini stock index futures intraday. He currently trades various futures markets from home in addition to managing a trader's educational forum

Title: Individual Trader
Company: CoiledMarkets.com
Address: PO Box 633
Naples, NY 14512
Website: coiledmarkets.com/blog
E-mail address: austinp44@yahoo.com

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Date: 09/04/09Rank: 4Comment: 
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