Technically Speaking
Darin Newsom DTN Senior Analyst

Wednesday 07/30/14

USDX: That Statue Moved

"That Statue Moved" was a small-time band from Kansas from the late 1980's and 1990's, with one of its members the younger brother of a good friend of mine from college. What could this possibly have to do with markets you ask? When I looked at the long-term monthly chart for the U.S. dollar index, the phrase "that statue moved" was the first thing to pop into my head.

Source: DTN ProphetX

I last discussed the U.S. dollar index (USDX) back on June 2, 2014, in the blog "The Glacial Advance of the U.S. Dollar Index." Are you seeing a pattern with the terms "glacial" and "statue?" To summarize, activity in the USDX has been less than scintillating since October 2013 with the index seemingly locked in a trading range between support at 78.725 and resistance near 81.140. The former marks the 50% retracement level of the rally from the low of 72.696 (May 2011) through the high of 84.753 (July 2013). The latter is the 38.2% retracement level of the sell-off from the July 2013 higher through the May 2014 low of 78.906.

A closer inspection of the chart shows that the USDX actually did move this month. The index traded below the June 2014 low of 79.759 early in the month before rallying above the June high of 81.020 here at the end. And unless the index sees a colossal collapse the last two days of July, it appears destined to not only close higher for the month but possibly above the June high.

Those familiar with this blog will recognize this pattern as a bullish outside month, meaning the index could soon look at extending this rally in its existing sideways trend. Initial resistance is pegged at 81.829, the 50% retracement level of the previously mentioned sell-off. Longer-term resistance is pegged at 83.424, the 67% retracement level of the downtrend from 88.708 (June 2010 high) through the May 2011 low. If somehow the USDX gest through resistance at the 83.424 level and possibly takes out the July 2013 high of 84.753, it could then set its sights on the long-term high of 88.708.

That isn't likely to happen without some sort of change in interest rates by the Federal Reserve -- another statue everyone is waiting to see move.

(CZ)

Posted at 8:36AM CDT 07/30/14 by Darin Newsom
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