The Dollar Index (DXC) began a strong rally two weeks ago after hitting a major support zone around the 79.00 handle and potentially forming a double bottom along with the 2013 October low. The trend line break to the upside sets bullish momentum in motion. With a holiday weekend upon, we will look to see if the U.S. dollar can maintain the NY highs going into the close.
The daily chart shown above highlights a potential run towards the 200-day Simple Moving Average (SMA) which is currently trading at 80.50. With liquidity about to leave for the weekend, price may not have enough buyers hanging around to provide one last significant thrust. A potential bearish ABCD pattern is also forming at 80.70. If we see price respect that technical level, a pullback will allow us an opportunity to look for a long entry.
If bearish momentum triggers a daily close below 80.26, a stronger correction may target the 50-day SMA at 79.95. Major resistance will come from 2014 high of 81.52.
The trade: Buy Dollar Index at 80.27 with a stop loss at 79.97 and a take profit at 81.47. The Risk/Reward Ratio is 1:4.
Edward J. Moya
WorldWideMarkets Online Trading