USDIndex: Converging trend lines squeezing index into a narrowing range and pullback hits support on 95.75 today
The daily candle chart below shows the medium term price history for the USDIndex - which is a contract for difference (CFD) that aims to track the underlying US Dollar index (DXY). Today the index is trading around 95.88 around time of publication after a volatile trading week.
Last time USDIndex was reviewed in Ideas You Can Trade was at the end of June when prices were at similar levels yet the area of 95.75 was described as resistance as prices pushed higher towards that level. After breaking above that ceiling the index pushed towards 97.50 earlier this week and has since dropped back to current levels.
If 95.75 holds as support then a bullish reversal should follow - marking a recovery of the pullback since Tuesday's high, whereas a break under 95.75 could enable a bearish continuation into next week. The index has been caught within a converging bearish channel and bullish support line - which are narrowing prices. In addition, the bullish support line coincided with today's low - as can be seen on the chart below - and should be watched just as 95.75 will - with regards to a breakout or reversal.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 96.05 with a Limit to take profit @ 96.40 and a stop-loss @ 95.75 Risk/Reward Summary: Limit risk = +35 points profit / (-30) Stop-loss risk = Gain to Loss Ratio = 1.16
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 95.50 with a Limit to take profit @ 95.21 and a stop-loss @ 95.76 Risk/Reward Summary: Limit risk = +29 points profit /(-26) Stop-loss risk = Gain to Loss Ratio = 1.11
Medium Term Daily Candle Chart :