Figure 1: Daily chart of the USD.
Since September the main equities indices have continued to descend but not the US dollar index ($USD). This could be interpreted as a form of bullish divergence. While indices have been hitting new lows, the $USD has not. In fact both the daily and weekly charts show signs of stabilization and one could argue a rising trendline.
|Figure 2: Weekly chart of the USD.|
|Graphic provided by: stockcharts.com.|
|The weekly chart suggests a bullish flag formation with 200-period EMA acting as important resistance going forward. A move above this 109 resistance could encourage a bullish test of the next resistance level formed by the 50-period EMA, currently at 111.43. This may coincide with potential stall areas as circled on the displayed indicators, the downside danger being a downside violation of the lower trendline falling below 106.5.|
Look for continuing bullish signs from the $USD to finally encourage the Dow and other main indices to turn upwards. The market is looking for an excuse to bottom and move higher, and improving strength of the greenback could be a catalyst.
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