USD index: where to from here?

Wed 20th Aug

The USD index had been consolidating in a Bull Flag pattern around the key 81.50 resistance level for much of the last three weeks. It has finally made a bullish break up and out of this pattern and is also now trading well above the 81.50 level.

USDX 4 hr chart:

USDX4

The index had been peppering the 81.50 over the last 3 weeks and had made the occasional daily hold just above this level but this week marks the first effective bullish move above the 81.50 in over 10 months:

USDX daily chart:

USDXdaily

The weekly chart is possibly the best chart to analyse to try and identify potential targets should we see any bullish continuation. The whole and half numbers tend to attract price and should be noted. However the 61.8% fib of the 2010-2011 bear move, situated at around 82.50, seems to be a zone of congestion and, as such, might be the next major target. It is also important to note that whilst we have seen a daily hold up and out of this 10 month trading channel we are yet to see a weekly candle close out of this channel. A weekly candle close above the 81.50 will be needed to confirm any possible bullish breakout.

USDX weekly

USDXweekly

The 61.8% fib of any move is often regarded as the ‘demarcation’ fib level or ‘last line in the sand’ for trading instruments. That is, a break of this level often signals a major change of trend and, consequently, these fib levels often tend to be areas of hesitation as the Bulls battle the Bears. Thus, whilst a weekly trading channel break would be bullish enough in itself, a break and hold above the 82.50 might signal even further bullish continuation for this index.

Summary:

  • the USD index has made a bullish breakout from the ‘Bull Flag’ and 81.50 trading channel on the daily chart.
  • A weekly candle close above the 81.50 is needed to confirm this bullish trading channel breakout.
  • A weekly close above 81.50 would suggest a target of the 61.8% fib up at 82.50.
  • Any close and hold above the 82.50 level would confirm an overall trend reversal and suggest bullish continuation. 

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