Technically Speaking

U.S. Dollar Index: An Unchanged Course

Source: DTN ProphetX

The Greek economic tragedy, will it ever end? This past month has seen headlines insinuating the final act of the drama ranging from one end of the spectrum to the other. Yet, as June comes to an end, the situation seems far from resolved. And the volatility in global markets, including the U.S. dollar index (USDX) continues.

Last week I had the opportunity to speak at a biofuels conference just outside Minneapolis, Minnesota. I was on a panel of three speakers, and found myself in respectful disagreement on most things market related with one of the other presenters. As it turns out, one of the major differences was our view on the direction of the USDX. As most of you know I'm bearish, and have been for quite some time. He, on the other hand, was equally bullish. So much so that a friendly wager was offered, one that I declined.

As the last day of June gets under way, my view of the major (long-term) trend of the USDX is unchanged. The index continues to be influenced by its 2-Month Reversal from March and April 2015, in conjunction with a bearish crossover by monthly stochastics above the overbought level of 80% at the end of April, all indicating the major trend was now down. Early May saw the USDX test support at 93.383, a price that marks the 23.6% (Fibonacci) retracement level of the previous major uptrend from the low of 70.698 (March 2008) through the high of 100.390 (March 2015).

This did spark a rally in early June to a test of resistance at 97.618, the 61.8% retracement level of the initial sell-off from the March 2015 high through the May 2015 low of 93.133. Since then the USDX has stabilized and is priced near the mid-point of the June range from 97.680 to 93.563 on the last day of the month.

Given that monthly stochastics remain bearish, the most likely scenario is that the USDX resumes its major downtrend over the course of the next few months. However, with the Fed expected to make a move (or two) on interest rates before the end of the year, the underlying fundamentals of the USDX remain neutral-to-bullish. Applying what we know about fundamentals to retracements puts support between the 33% level of 90.503 and the 38.2% level of 89.048, with an outside chance at best of a 50% retracement back to 85.544.

A stronger case for support at the 38.2% retracement level to hold is made when adding analysis of the weekly chart to the mix. The secondary (intermediate-term) trend is also down, though stochastics are nearer the oversold level of 20% than monthly stochastics. The 50% retracement level of the previous secondary uptrend from 78.906 (low from the week of May 5, 2014) through the 100.390 high (week of March 9, 2015) is 89.648. Notice that this is in line with expected support on the monthly chart (90.503 to 89.048).

To track my thoughts on the markets throughout the day, follow me on Twitter:www.twitter.com\Darin Newsom

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