Cautious Optimism For Dollar Index Rally As We Await Confirmation of Bullish Trend
The Dow Jones FXCM Dollar Index (ticker: USDollar) continues to hold just below the identified falling trend line off February highs. Yesterday’s hefty gains on the back of the euro’s outsize loss after ECB President Trichet’s press conference certainly helped set the index up for a strong close potentially above the trend line. However, until the index clears this hurdle a topside break towards range highs and above remains only one of several possibilities for the index next week. If the index fails to close above the trend line then the downside pressure remains which could come to pull the index back into its range bound trade which we have become so accustomed.
With our usual Friday look at a weekly chart we have left the falling trend line resistance on the chart just to highlight where we lie on the weekly chart. It looks very much at this juncture, early Friday, that today will be a quiet day of consolidation which will see the index close the week firmly higher but still below the trend line which should set the index up nicely to move above the trend line early next week. However, we must add some caution before getting overly bullish at this time that the dollar index hasn’t moved higher for three consecutive weeks in many, many months now and we could see some US Dollar bears start viewing the recent buck rally as prime selling opportunity.
Therefore, our preferred strategy at this time is to remain cautiously bullish awaiting a fuller confirmation of an imminent test of range highs and possibly a topside break which should open a move back toward 10,00 in coming weeks. However, failure to continue this run higher, or failure to move above range highs will likely keep the buck in its loose 9,770 – 9,320 range.
Written by Jonathan Granby, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.