Technically Speaking

If you've been following along with market headlines this week, China's devaluing of the yuan has been blamed for everything but the contaminated water leak in southern Colorado. Given time, some connection might be made there as well.

Be that as it may, the U.S. dollar index (USDX) has largely yawned at the goings on in the yuan, not surprising given the USDX is based on its value versus a basket of European currencies. Still, with the world financial markets heaving as if having eaten liver sushi, a stronger upward move in the USDX might have been anticipated.

Looking at its weekly chart as Friday gets under way, the USDX is grinding toward its 4-week low of 95.633 (red dotted line). Even if it doesn't cross that bearish line today, a close near this week's low puts the index within striking distance of its new low - this week's low - early next week. At that point, barring another strong recovery rally, the USDX would be signaling a return to the secondary (intermediate-term) downtrend on its weekly chart and a move back in step with the major (long-term) downtrend its monthly chart.

Weekly stochastics would confirm such a move as well. The recent recovery rally from the low of 93.133 (week of May 11) resulted in a test of resistance near 97.973, the 67% retracement level of the initial sell-off from 100.390 through the previously mentioned low. At the same time, weekly stochastics posted a bullish crossover above the oversold level of 20% indicating a minor (short-term) sideways trend or consolidation phase. This week, stochastics are in position to post a bearish crossover below the overbought 80% mark, signaling the secondary downtrend is set to begin again.

Initial support on the weekly chart remains near 93.236, the 33% retracement level of the previous secondary uptrend from 78.906 (week of May 5, 2014) through the 100.390 high. This level corresponds with 23.6% retracement support on the long-term monthly chart. If this area fails to hold next secondary support is at 89.648, a mark between major support at the 33% and 38.2% levels of 90.503 and 89.048.

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