Dollar index testing two year old support
The Dollar index is trading two-year lows. Shaun Murison applies some technical analysis on the chart.
The Dollar Index is trading two-year lows. This presents us with the scenario where the index is now at a key psychological level, a break of which could see further declines, although traders might be considering the Dollar to be oversold at this point and readying itself for a new long opportunity.
While we have seen a short-term decline in the value of the Dollar Index (US Dollar Basket), the longer-term picture of the index highlights a broad sideways range. The short-term weakness has moved the index to the 9445-support level. The short-term decline to this range support level has also moved the stochastic into oversold territory.
The oversold signal at range support is a suggestion that a rebound in the Dollar index may be nearing. However, it would be prudent to wait for the price to stop falling and produce a bullish reversal pattern, supported by the stochastic crossing out of oversold territory before looking for long entry (as we do not want to catch the proverbial falling knife). Should these reversal signals manifest, a move back towards initial resistance at 9590 would be favoured. Traders of the reversal at support could consider a close below the price reversal low as a stop loss consideration.
In the absence of these reversal confirmations and should a break (confirmed with a price close below) of the 9445 level instead occur, 9330 would be the next downside support target favoured from the move. Due to the magnitude of the recent short-term decline and unfavourable risk relative to reward assumptions from this type of move, we would prefer not to short the downside breakout, but rather wait for a bullish reversal before the 9330 support level to confirm a possible long entry opportunity.
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