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Talking Points
- US Dollar at cyclical crossroads
- Nearby moving averages should prove critical
US Dollar – Where the Rubber Meets the Road?
The US Dollar Index (basket of USD versus EUR, JPY, GBP & AUD) looks to be coming up on an important near-term crossroads. As I wrote a few days ago, the middle of this week looks important from an intermediate-term cyclical perspective and we should get some answers on just how important the decline from the January 29 12,306 high has really been. If it has just been a relatively minor correction against the broader USD uptrend like I suspect, then any remaining weakness should not really extend too much past tomorrow. New lows after tomorrow would be a strong signal that the correction in USD has a lot more room to run.
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The levels to watch over the next 24 to 36 hours are pretty clear as well. On the downside, the 200-day moving average was undercut at the beginning of the month like in August, September and October. In these prior instances the index did not close back under the moving average after having closed above it so if that were to occur this time around it would be a pretty clear negative change in behavior and is something I will be watching out for closely. Currently the 200-day moving average stands at 12,040.
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On the topside, the price action over the past couple of weeks has traced out a pretty clear potential inverse head & shoulders pattern on the daily chart so the neckline of this pattern at 12,110 is a clear level of interest – especially if the index can muster a daily settlement above it. Further up the 50-day moving average and the 50% retracement of the year-to-date range converge around 12,155 and this looks to be the key upside pivot in confirming any sort of meaningful upside resumption.
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--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter @KKerrFX
