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US Dollar Vulnerable to Deeper Losses, S&P 500 at Risk of Reversal

By , Currency Strategist
19 March 2012 04:40 GMT

THE TAKEAWAY: The US Dollar is vulnerable to deeper losses after taking out initial support while the S&P 500 appears increasingly likely to produce a downswing.

S&P 500 – Prices are facing resistance at 1408.90 at the confluence of the 38.2% Fibonacci expansion and the top of a Rising Wedge chart formation. Negative RSI divergence hints a move lower is ahead. Initial support lines up at 1382.90, the 23.6% Fib, and is reinforced by the Wedge “midline”.

US_Dollar_Vulnerable_to_Deeper_Losses_SP_500_at_Risk_of_Reversal_body_Picture_5.png, US Dollar Vulnerable to Deeper Losses, S&P 500 at Risk of Reversal

8hr Chart - Created Using FXCM Marketscope 2.0

CRUDE OIL Prices followed a Hammer candlestick with a break through the top of a Rising Wedge chart formation identified last week. The bulls are now testing above initial resistance at 107.35, the 23.6% Fibonacci expansion, with a close above this barrier exposing the 38.2% Fib at 109.56. The Wedge top, now at 106.43, has been recast as near-term support.

US_Dollar_Vulnerable_to_Deeper_Losses_SP_500_at_Risk_of_Reversal_body_Picture_6.png, US Dollar Vulnerable to Deeper Losses, S&P 500 at Risk of Reversal

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD Prices appear to be carving out a Falling Wedge bullish reversal chart formation, with a Harami candlestick pattern above support at 1638.84 reinforcing the likelihood of a bounce. Initial resistance lines up in the 1666.37-1677.05 area, with a break above that validating the Wedge setup and exposing resistance barriers at the 1700/oz figure as well as 1718.05.

US_Dollar_Vulnerable_to_Deeper_Losses_SP_500_at_Risk_of_Reversal_body_Picture_7.png, US Dollar Vulnerable to Deeper Losses, S&P 500 at Risk of Reversal

Daily Chart - Created Using FXCM Marketscope 2.0

US DOLLAR As we suspected, prices followed a bearish Dark Cloud Cover candlestick pattern with a move lower, taking out support at 9995 marked by the 50% Fibonacci expansion. From here, sellers aim to challenge the 38.2% Fib at 9919, a barrier reinforced by a falling trend line set from mid-December and now recast as support. The 50% expansion now marked the first layer of resistance.

US_Dollar_Vulnerable_to_Deeper_Losses_SP_500_at_Risk_of_Reversal_body_Picture_8.png, US Dollar Vulnerable to Deeper Losses, S&P 500 at Risk of Reversal

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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19 March 2012 04:40 GMT