3 Targets for the US Dollar

• Posted by Greg Harmon
• on December 16th, 2016

Donald Trump woke up the US Dollar. Or perhaps this was just a coincidence in timing, where the FOMC had their last roadblock removed that was preventing them from raising rates, as the Japanese and European monetary bodies remain busy supporting their economies. Whichever the case, the US Dollar is now marching higher after a 2 year pause in its move higher. This raises the question where will it stop? I do not have that answer but I do see 3 places to watch that could give it at least a pause, if not halt it.

The first is a short term target. The immediate move out of consolidation is actually the third leg on a shorter term scale of a 3 Drives pattern to the upside. This pattern gives a target near 106 for the US Dollar Index in the short term. The 3 Drives would then raise caution for a reversal. If that happens a retest of the breakout at 100 would be the spot to watch for. A hold there and turn back higher would be a strong buy signal.

The second target is a Measured Move higher out of the broad consolidation. Looking at the move into the channel from the 200 month SMA in July 2014 to the center of the channel, and then adding that back on top of the break out gives a target to 113. This would also be around the bottom of the consolidation range from the high area before 2002.

Finally, the third target, would be a full retracement of the downward move from 2002, back to 120. The stall pre-FOMC meeting had found the 61.8% retracement, a key level for traders, at 101.60. But the US Dollar Index is putting some space between it and that key level now. There are other retracement levels of importance along the way at the 78.6% and 88.6% prices of 109.70 and 114.50, but they have less importance than the 120 level.

Any one of these price points could stop the US Dollar in its tracks. Or it could be none of them and some other place. Or it could just continue on to new all-time highs. These price levels are about points of reflection, where traders and investors have had price battles and are conditioned to make decisions. They are not armor plated walls. Use them to your advantage in a trend and ditch them when they do not work.

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