USD Index—Monthly

Yesterday saw another low for the buck. A look at the monthly chart provides some interesting insights.

First, note what seems to be the pronounced evening star (I circled it) currently forming. We won’t know for sure until the month is finished but this kind of three-candle formation after an uptrend is bearish. Since it’s occurring at resistance, it could mean there is further down potential for the dollar. Second, the pair is coiling within a symmetrical triangle and it’s not unreasonable to think it may be headed to the bottom of the triangle which would be about 75.42. (That would give the gold-hoarding doom and gloomers something to hop up and down about.)

One could also make the case for an ABC correction. I don’t think that’s as likely but one might as well look at the possibilities. The reason I don’t think it’s likely is that the retracement was 82% of the move from the 2005 high of 92.63 to the 70.70 low and that’s a pretty steep retracement. One wouldn’t expect to see that if the underlying trend was strong. It makes more sense to see it as having completed wave one and two and beginning wave three.

Another thing that’s encouraging on this chart is the RSI. It’s maintaining a nice upward line and at the Nov. 2009 dip stayed above 40. That doesn’t sound very bearish.

Finally, it’s at support now with polarity and price support and it’s close to a Fib confluence area at 81.66. There’s additional support down to 79.50.

So what to conclude from all this for a longer term bias? Given the potential EW third wave, the RSI, and the current and nearby support levels, I have a positive bias. That evening star is gruesome and the symmetrical triangle is compelling however, so I’m not sure I’d jump into long positions at the moment. What it really says is that I need to now drop down and analyze shorter term charts.

Here’s the monthly chart:





















© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.