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TECHNICAL ANALYSIS


Half A Dollar For The DX

06/21/10 02:03:49 PM
by Austin Passamonte

Here's the midterm outlook for the US Dollar Index.

Security:   DX
Position:   N/A

In spite of all else, the US dollar holds the top currency reserve status until something monumental changes in the world. Global history tells us that no society endures forever -- or at the very least, none has survived forever to date. For now, all we can do is watch the meandering valuations against a basket of other currencies for present fair value consideration. This blended measure is what constitutes the US Dollar Index (DX).

FIGURE 1: DX, DAILY
Graphic provided by: TradeStation.
 
The euro/dollar crisis, which bubbled to surface in early April, caused a brief, rapid, and extreme rally in the USD value versus a basket of other currencies. That ascending trendline in Figure 1, the daily chart, tracks the extremity of such ascent. On Tuesday, June 15, there was a break of that trendline. The rest of the week held closes below the projected support now presumed to be resistance.

The lower trendline projection from the 78 value range in January 2010 through a higher-low pullback in early April points toward the 83 area as the next probable support. If and when the DX pulls back to that price magnet, we should see a pause or reflexive bounce. Likewise, the distance from recent lows (77+) to highs (89+) or roughly 12 cents on the scale suggests a -50% retracement of that swing to be 89+ minus $0.06 = 83 zone. Two different technical measures project to the same valuation level as probable support (Figure 2).

FIGURE 2: DX, MONTHLY
Graphic provided by: TradeStation.
 
Figure 2, the monthly chart, shows the big picture (adjusted contract) from 2001 decade highs near 130 through 2008 lows near the 75 zone. Connecting subsequent lower highs and lower lows creates a descending channel (blue dashed), the middle value of which has held swing highs the past two times, including the present. June 2010 opened at the midline value of this 10-year descending channel. It needs to close above that point for at least a couple of months before any sustained upside progress can be trusted.

If and when that midchannel value gives way, net stop in the congestion above would be the 92-94 area. So far this decade, a formidable triple-top zone of peak swing highs has been formed each time. Before the DX can mount any type of assault on long-term historical highs, it must first hit the base at the 95+ zone to expend all resistance. Until those things happen, the downward trek through these technical levels remains firmly intact.



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: 06/21/10Rank: 3Comment: 
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