What to Watch with the Crashing Dollar

Google “Crashing Dollar …” and the first 3 selections for the next 4 characters in auto-finish setting are 2014, 2015 and 2016. That is bizarre as the US Dollar Index was flat for most of 2014 until it started to rise in July. that continued through the rest of the year and into early 2015. And 2015 and 2016 then saw the Dollar Index move sideways in a channel. Look for yourself on the chart below. Yet another example of why you should follow price action, not predict it.

If there was ever a crash scenario in the US Dollar Index it could be happening right now! Since the December peak the Dollar Index is off nearly 12%. Not quite a crash, but a big move for something that historically has pretty low volatility. And the Index has passed through some major milestones. So what is next if the breakdown continues? Lets take a look.

Three weeks ago the Dollar Index broke below the 2 year channel that began at the start of 2015. It had dropped below and then reversed before so not really a big deal. And it did stop then at its 200 week SMA. That week was followed by a Spinning Top candle the following week still right at the 200 week SMA. This is a candle of indecision and often though of as a reversal candle. To confirm a reversal though the next week candle (closing today) would need to close higher.

It will not. With one trading day left this candle looks to be making a new 2 year low. This suggests that we look for possible support areas as it continues lower. Friday morning it is through that 200 week SMA and at a 50% retracement of the major move higher. This level might trigger some buyers to step in. Below the 61.8% retracement at 88.50 would be the next level to watch.

There was a minor pause at 84.85, near the 78.6% retracement, in the way higher in 2014 that could stall a drop. From there the price history record is deeper as there was a lot of activity between 79 and 84.85 in the 2 years from 2012 to 2014. There is also a bullish Shark harmonic that has built (green triangles). It would look for a Potential Reversal Zone (PRZ) at about 81.50, or through that at the PRZ II at 76.25.

91.40, 88.50, 84.85, 81.50, 79, 76.25 – 6 price levels to watch. Any of these prices or all of them or none of them may play an important role. But each one will have some meaning for a subset of traders and therefore are worth watching.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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