Longer Term Look At The Dollar Index

So we’ve already seen two examples of shoulder head shoulder reversals in the dollar just this year alone, but I want to take a look at the longer term chart of the USDX. When you pull it back a few years, you see that not only are there two SHS patterns on the chart from this year, but we’re actually in another, quite massive shoulder head shoulder pattern on a long term scale.

The previous support of 77.50 broke as I predicted beforehand but there has been a bounce in the dollar index in recent weeks which some are calling a correction of oversold technicals. However, if you take a look at the bull flag that started around the end of December 2009 which ended bullishly a week or so into January, you’ll notice the two humped camel on the slow stoch as well as that fact that we are at the exact same price level right now as we were back then during that very bull move. The only difference is, this time we’re moving to the downside and we’re forming what could turn out to be a bear flag leading a selloff instead.

The bottom price target on a shoulder head shoulder pattern is forecasted by measuring the distance from the neckline to the top of the head, then subtracting that distance from the neckline. In this case, the current trend moved roughly 12 points to the upside. Reverse that, and you get a 12 point move to the downside from the neckline. The neckline in our trend is at 80, subtracting 12 would give us 68, an all time low for the USDX. This estimation is done with some leeway however. Technically I could begin the trend in November of 2009 when the dollar index was hovering around 75 and some change- the projected outcome for the USDX then would come to 66.

Some final thoughts- we’ve bounced in nominal terms, and on the MACD, Slow Stoch, and RSI and in doing so, literally mirrored what happened almost one year ago at the beginning of the pattern. If you’re still in the buy the rumor, sell the news camp, you may want to consider the techincals one more time. The chart has been beaten before, but the has also chart never lied… the media on the other hand is a plethora of opinions and pumped stories backed by agendas.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

2 Responses to Longer Term Look At The Dollar Index

  1. Great analysis of the USDX long-term. Check out this weekly market commentary presented by ICE:

    ICE Market Commentary

    • aaronbasile says:

      Nice work. In addition to the 1.40 level mentioned in the video regarding the EUR/USD, if you check the 2 year chart, it appears that the next support is forming at 1.38.

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