The US dollar index surged over 3% last week, which is actually a big move in the index.

It gives us a good lesson in how multi-time-frame confluence support can unite to form a powerful move and turnabout in price—as we can see in the weekly and daily charts.



Weekly Chart


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I’ve been showing in my weekly intermarket report the two confluence levels of support to watch, and what to expect at each.

First, we had a nice confluence of the 50-week EMA and 50% Fibonacci retracement at the $81.50 level, and if the index failed to find support and bounce off $81.50, then the play was to expect a downward thrust to test the second and final price confluence at $80.

We ended last week right at the $80 level for a “make or break” support play, where a reversal or bounce up off this level was the expected play, but a downside break under $80 would be a game-changing bearish event.

As it were, the dollar index not only bounced off confluence support at $80, but surged off of it.

The confluence comes specifically from the 200-week SMA at $80.14 and the 61.8% Fibonacci retracement as drawn at $79.86. That converges about the $80 level.

Let’s now move to the daily chart to see more evidence of confluence at the $80 level.

Daily Chart


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Going into the week, we had price testing the 200-day SMA—a very critical average—at the $80.50 level as well as “riding” (going down with) the lower Bollinger band.

More importantly, price retested the prior support area from the April and February-to-March price congestion/support area also at $80.

With all the price support, the daily chart—and especially the intraday charts—formed positive momentum divergences as shown in the 3/10 momentum oscillator and other momentum oscillators (rate of change, etc.).

It’s often a good idea to take profits (if short) when price tests a confluence support area and forms lower-time-frame positive divergences.

Traders can also find good opportunities to get long in such a structure when price breaks a falling trend line, such as what happened on Tuesday, August 10 on the break above $81.00. That’s a more conservative “Prove it to me” entry.

An aggressive entry would be getting long as price tested $80, which allowed a tight stop under $80 or $79.50, depending on how much you wanted to risk. When price tests a major confluence support area, you can often locate your stop closer than you would be able to otherwise, which allows for explosive reward-to-risk ratios.

For now, keep focused on the $83 area, which is confluence resistance, and a breakout above there would be a further confirmation that a likely reversal has taken place, instead of a one-week retracement.

The more you study these patterns/situations, the better prepared you’ll be to recognize and then trade them in real time as they develop.

By Corey Rosenbloom, trader and blogger, AfraidToTrade.com