By Andrew Nyquist
After making new highs in July, the US Dollar Index retraced roughly 50 percent of its run from the 2011 lows. This key Fibonacci retrace level, coupled with lateral pivot support provided fuel for another rally attempt, one which backtested the broken uptrend line in November, all the while managing to carve out a right shoulder of a bearish Head and Shoulders formation.
This formation will bear even more significance if the index moves back to the neckline around 78.50 – 79.00. And if this happens, I would suspect the index will break down. A break down would target 73.00 – 74.00. However, there is also a chance that the index rallies and revisits resistance at the shoulder line around 81.50. A move above this level would signal that the Dollar is ready to retest this year’s highs.
Either way, the technical support and resistance lines are beginning to narrow. And this is usually a pretty good sign that a binary outcome is forthcoming; possibly a news driven event? Note that any large move in the US Dollar Index will have wide ranging effects on global equities and commodities.
Trade safe, trade disciplined.
US Dollar currency chart posted on December 9, 2012. USD – Dollar currency technical head and shoulder formation with support and resistance levels.
No position in any of the securities mentioned at the time of publication.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.