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Forex Analysis: Can the Dollar Capitalize as S&P 500 Spikes Lower?

By , Currency Strategist
21 December 2012 05:22 GMT

THE TAKEAWAY: The S&P 500 spiked sharply lower as US fiscal cliff jitters hit fever pitch, with downside follow-through from here offering a potent driver for Dollar gains.

US DOLLAR TECHNICAL ANALYSIS Prices staged a mild recovery from neckline support established from late October (now at 9928) to retest trend line support-turned-resistance at 9958. A break above that aims for the 23.6% Fibonacci expansion at 9995. Alternatively, a drop below neckline support eyes the channel bottom at 9867.

Forex_Analysis_Can_the_Dollar_Capitalize_as_SP_500_Spikes_Lower_body_Picture_4.png, Forex Analysis: Can the Dollar Capitalize as S&P 500 Spikes Lower?

Daily Chart - Created Using FXCM Marketscope 2.0

S&P 500 TECHNICAL ANALYSIS – Prices put in a bearish Dark Cloud Cover candlestick below falling trend line resistance set from the September 14 high (1444.80), hinting a move lower is ahead. Negative RSI divergence reinforces the case for a downside scenario. Sellers are now testing through initial rising channel support at 1421.9l0, with a confirmed break downward on a daily closing basis exposing 1398.10. Alternatively, a reversal above the trend line aims for the channel top at 1452.00.

Forex_Analysis_Can_the_Dollar_Capitalize_as_SP_500_Spikes_Lower_body_Picture_3.png, Forex Analysis: Can the Dollar Capitalize as S&P 500 Spikes Lower?

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS Prices plunged through support at 1659.90, the 76.4%Fibonacci expansion. Sellers now aim to challenge the 100% mark at 1630.97, a barrier reinforced by the bottom of a falling channel carved out since mid-September. A further drop below this boundary aims for the 123.6% Fib at 1601.78. The 1659.90 level has been recast as resistance, with a reversal back above that targeting the 61.8% expansion at 1677.84.

Forex_Analysis_Can_the_Dollar_Capitalize_as_SP_500_Spikes_Lower_body_Picture_2.png, Forex Analysis: Can the Dollar Capitalize as S&P 500 Spikes Lower?

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video.

CRUDE OIL TECHNICAL ANALYSIS Prices are testing the top of what may prove to be a bearish Flag chart pattern (90.37). A reversal lower from here that produces a close below pattern support (now squarely at 86.00) confirms the setup, implying a measured downside target at 81.63. Alternatively, a break above 90.37 targets falling trend line resistance at 94.04.

Forex_Analysis_Can_the_Dollar_Capitalize_as_SP_500_Spikes_Lower_body_Picture_1.png, Forex Analysis: Can the Dollar Capitalize as S&P 500 Spikes Lower?

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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21 December 2012 05:22 GMT