Technically Speaking

The U.S. dollar index has been trying to grind higher, but like so many other markets, has been mired in an extended sideways trading patter. Last week saw the index post a bullish outside week (trading above the previous week's high, below the previous week's low, and closing higher for the week). At first glance this would seem to indicate an extension of the recent rally to its next target of 81.876, a price that marks the 50% retracement level of the previous downtrend from 84.753 through the low of 78.998.

However, the picture may not be as clear as that. The index has struggled with resistance at the 38.2% retracement level of 81.196, rallying as high as 81.482 (week of November 4, 2013) before closing back below resistance that week. This week, when follow-through buying should have been seen, the U.S. dollar index has already come under pressure.

Another technical indicator showing the greenback may not have as much upside potential as the weekly chart would indicate is the stochastics (bottom study). Notice that both the faster moving blue line (80%) and slower moving red line (74%) are at or near the overbought level of 80%. Usually this means that the market may be nearing a top. If so, look for the U.S. dollar index to struggle between the 81.196 and 81.482 levels, with an outside chance of spiking to near 81.900.

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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.