Technically Speaking

The Many Trends of the USDX

Source: DTN ProphetX

Since Greece's referendum vote two weeks ago and the hubbub that followed, the U.S. dollar index (USDX) has been pushing higher and the euro sliding lower. This has led to the knee-jerk analysis that the greenback is set to soar once again, particularly with the Fed still expected to make an interest rate move (or two) yet in 2015, while the euro sinks further into oblivion. However, a look at weekly and monthly charts for both indicates that still might not be the case.

A look at its weekly chart shows the recent rally has the USDX testing resistance at 97.973, the 67% retracement level of the sell-off from 100.390 (week of March 9, 2015) through the low of 93.133 (week of May 11). Note that the latter was a solid test of the 33% retracement level of the previous secondary (intermediate-term) uptrend from 78.906 through the 100.390 high. Given what we know about fundamentals and retracements (the more bullish market fundamentals, the smaller the retracement) and the never-ending promise of higher interest rates from the Federal Reserve (bullish market fundamentals), support between the 33% retracement level and 50% retracement level of 89.648 should hold the ongoing secondary downtrend.

That's right, an ongoing secondary downtrend.

The recent rally in the USDX has daily stochastics showing an overbought situation and nearing a secondary (confirming) bearish crossover above 80% that would establish a minor downtrend. With the USDX testing secondary (and major) resistance at the previously mentioned 97.973 mark, the stage seems to be set for the minor trend to turn down, reestablishing the secondary downtrend and strengthening the major (long-term) downtrend on the monthly chart.

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