How I’m Trading the US Dollar Index

06/28/2010 10:16 am EST

Focus: FOREX

Corey Rosenbloom

Founder and President, Afraid to Trade

Friday’s close in the US dollar index took us back to the key short-term support line at the $85 index level.

Let’s take a look at the daily chart to see why this level is important, and where we might go depending if support holds or breaks.

Click to Enlarge

The dollar index rallied persistently to the 2009 prior price high at the $89 level, a key price target that has now been achieved.

The index reached this target in early June as a clear negative momentum divergence undercut the new high in price. 

We are now seeing an expected pullback to the rising EMAs for support.

Price broke the rising 20-day EMA recently and now tests a convergence of three support levels:

1.  The 50-day EMA at $85.08
2.  The lower Bollinger band at $84.76
3.  The “round number” price of $85, which also was a swing high in May

If the dollar holds support at this level, then we would see a continuation of the uptrend. However, if the index fails to hold $85, we would be looking for a sell swing back to the $82 or $83 level as the next likely swing in price.

Keep in mind that currently, the 20-week EMA rests at$83.40, as seen below.

Click to Enlarge

So, the if/then statement becomes:
“If above $85, then assume uptrend continues as seen on the daily chart.”
“IF under $85, expect to see $83.50 in a deeper pullback as seen on the weekly chart.”

I explain this in deeper detail, along with the standard analysis and levels to watch in bonds, gold, oil, and stocks in this week’s Inter-market Report for members.

By Corey Rosenbloom of Afraid to Trade

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