Chart Of The Day: Why The Dollar Is Set To Continue Even Higher
Investing.com | Feb 05, 2020 13:31
The dollar index is advancing for the third straight day, ahead of today's ADP nonfarm payroll report and the ISM non-manufacturing PMI release as well as Friday's nonfarm payrolls.
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While traders may be tempted to interpret this rise as a sign of faith in the economy, it's actually more likely to be a reaction to increasing indications from foreign central banks of their willingness to cut rates if necessary, to help their economies withstand the impact of the spread of the coronavirus.
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Having said that, the advance extended the greenback’s weekly upside, taking on last Wednesday’s highest peak in the short-term uptrend since the Dec. 31 bottom. From that point it has since been trading within a rising channel.
Note how the previous, Dec. 12 low turned from a support to a resistance after failing on Dec. 27 to keep prices higher: the short-term rising channel broke free of the medium-term falling channel since the Oct. 1 high.
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When taking a longer view, it's evident that the medium-term falling channel is in fact a falling wedge, bullish after the preceding advance. The wedge’s upside breakout signals a resumption of the rising channel since July 2018.
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The weekly price bounced above the 50 WMA, as the 100 WMA crossed above the 200 WMA. There, it joined the 50 WMA in a bullish MA formation — in which shorter MA’s accelerate at a faster rate than longer ones, reflecting an overall strengthening of the index.
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The only thing that worries us is a negative divergence triggered by the RSI, which has been falling against the price, suggesting waning momentum. An upside breakout above 60 would likely project excitement among dollar bulls.
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Conservative traders would wait for the dollar to cross the 98.50 resistance since November, then wait for the pullback to retest it and join the uptrend.
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Moderate traders would be happy with a new high in the short-term uptrend — with a price higher than the June 29, 98.19, high — and then a return move for a tighter stop loss, not necessarily to test the trend.
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Aggressive traders are likely to jump in on any dip.
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