US Dollar Forms Popular Trading Pattern

04/03/2012 6:00 am EST

Focus: FOREX

The formation of a large head-and-shoulders pattern on the US dollar index chart suggests potential for a sizable down move if support at the neckline is broken, writes Chris Vermeulen.

The US dollar index has formed a possible large head-and-shoulders pattern, meaning the dollar could fall sharply any day. The size of this chart pattern indicates that if the dollar breaks down below its support neckline, we should expect the dollar to fall for two to three weeks before finding support.

See related: How to Trade a Head-and-Shoulders Pattern

chart
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Keep in mind that a falling dollar typically means higher stock and commodity prices. If this scenario plays out, then we should see the market top in late April, which falls in line with the saying “Sell in May and Go Away.”

See also: The Myth About Oil/Stock Correlation

By Chris Vermeulen of The Gold and Oily Guy

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