Fibonacci’s Currency

• Posted by Greg Harmon
• on March 2nd, 2012

The US Dollar Index, ($DX_F, $UUP) has been very technically driven when viewed using Fibonacci analysis. The weekly chart below shows the last 3 years with the Fibonacci levels measured off of the move lower from June 2010 to the low in May 2011. After the move lower the first major pause came at the 38.2% retracement of the down move in October 2011. During that month the price of the Index hit the highest Fan line and was rejected hard before holding the 38.2% level. The bounce back lower, although not shown, stopped at the 61.8% retracement of that first bounce at 75 {78.84 – 0.618*(78.84-72.73)}. From there it moved back up over the 38.2% level and stalling after breaking through the Arc. Pulling back from there and finding support on a retest of the

38.2% level it moved higher, touching the 50% level a couple times before breaking through and stopping again on a break through the next Arc. Now it is pulling back and oscillating around that 38.2% level once again and within the Arc. What does this mean for the future? A detachment from the 38.2% level lower will likely lead to a test of the 23.6% level and possibly where the Arc and Fan line intersect it in May. Detachment to the upside needs to get through the Arc and then sees a target of the 50% and 61.8% levels. The other indicators on the chart are mixed with the MACD suggesting a move lower while the RSI is bullish and holding after hitting the mid line. The Bollinger bands are pointing flat and the Index is near the mid line of that as well. Small size and tight stops are required to play the Index until it makes a definitive move.

I always find it fascinating when using Fibonnaci’s how often the ratios (23.6%, 38.2%, 50%, 61.8%) show up as important after the fact in the move that created them. Notice how all four played a role in the move lower from the 2010 high to the 2011 low. Like the Index already knew how far it was going to travel and laid out those points ahead of time. Kind of freaky huh?

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