USDIndex: Resistance Nearing While in Steep Uptrend, Triple-Top Could Mean Reversal or Breakout
The daily candle chart below shows the medium term price history the USDIndex contract for difference (CFD) which is trading around 85.36 around time of publication today.
This CFD aims to track the underlying US Dollar index (DXY), and is nearing a long-term bullish resistance line - drawn from the most recent multiyear highs (see point 1 on daily chart below in red).
The USDIndex has been in a steep uptrend that started in June (point 2 on chart below) and accelerated in mid-August (point 4), and just yesterday reached just under that long-term resistance line (point 1) as it pushed towards a new multi-year high.
If this resistance line (point 1) is tested a reversal could follow with the USDIndex pulling back or correcting in its uptrend. Whereas a break above this long-term resistance line would be very bullish and could cause a sustained break-out higher.
An additional chart below base on weekly candles provides a much further-out view of the longer-term trends at play such as how the August 2014 trend acceleration was due to the breakout of a multi-year bearish resistance line (middle dotted white line on weekly chart below).
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 85.60 with a Limit to take profit @ 85.93 and a stop-loss @ 85.39 Risk/Reward Summary: Limit risk = +33 points profit / (-21) Stop-loss risk = Gain to Loss ratio = 1.57
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 85.15 with a Limit to take profit @ 84.93 and a stop-loss @ 85.29 Risk/Reward Summary: Limit risk = +22 points profit /(-14) Stop-loss risk = Gain to Loss Ratio = 1.57
Daily Candle Chart:
Weekly Candle Chart: