What’s new on the FX markets? What is the current US Dollar direction? The US Dollar index is a good synthesis and gives a pretty good snapshot of the current trends.
Let’s take the daily chart. The index has just reached a key level. This level is a support line around 78.5 and is the last Fibonacci retracement ratio (the 61.8%) of the rise occurred between points A and B on the chart. Point A is the inflection point where the Greenback started bouncing firmly last year at mid-July. From this low of 72.11, the index rebounded to a high of 89.71, posted in last March (point B). This 24% uptrend was backed by an ascending support line (green line) that was eventually cleared in late April this year.
This triggered a bearish signal that drove the price lower very quickly. As a result, the index fell to a low of 78.37 in early June (point C), the 61.8% Fibonacci retracement level. The index found some support there and bounced to 81.8 two weeks later, before it eventually fell back to the Fibonacci support (point D).
Points C and D may create then a “double bottom” chartist pattern. As this pattern appears on a support line, it is likely to strengthen its accuracy. That’s why a new rebound from the current level is probable. However there is an immediate resistance line that could prevent the price to move higher on the near-term: it’s the descending line that comes from point B and goes through lower highs (points E and F).
The MACD has indicated a bullish divergence. It did not confirm the new low posted by the price action on point D. The current price is 79.31 and the resistance is just above, around 79.50. A cross above this resistance line would turn the technical indicators bullish. The next target would probably become the level of 83, which is the 38.2% retracement ratio.
Of course, on the downside, a break below the support of 78.30 would be a clear new bearish signal, with probably no important new support before 74.75 (a previous high posted in June 2008).
