It’s been said many times before, and indeed in many different fields of endeavour that ‘a picture paints a thousand words’, this sentiment perfectly describes the weekly chart for the US dollar index, portraying as it does the indecision and lack of clarity which has been the hallmark of the FED over the last twelve months. The rise and fall in the currency of first reserve each month is almost metronomic, as each monthly meeting is viewed with anticipation and expectation of a rise in interest rates, only for it to be subsequently dashed in more weasel words describing the lack of decision making in ever more bizarre and vague terms. This is a problem of the FED’s own making having created the expectation of a rise, and then duly failed to deliver, with the FED now increasingly boxed in a corner as the year end approaches.
From a technical perspective, the index has been waterlogged since early summer, trading in a narrow range whilst establishing an ever more developed area or resistance in the 12,100 area. This is a region which has been tested on nine separate occasions since June, with each attempt to breakout duly failing, with the index reverting back lower, initially to test the 11,800 area, and more recently the 11,900 of three weeks ago. Last week’s price action for the index closed as a long legged doji candle, sending yet another clear signal of indecision in this timeframe. However, what is perhaps more illuminating is the candle pattern that has been building since May with the weekly chart now developing a rising triangle formation, with the yellow dotted line defining the upper level, and the blue dotted line defining the rising price action. This is a classic pattern, and one which suggests bullish momentum for the US dollar remains firmly in place for the time being. This rise in price action from below can be a precursor for a bullish breakaway in due course through the 12,100 area, which will then provide a solid platform of support for any move higher. For the week ahead however, we can expect to see further congestion in this region following last week’s long legged doji candle as we wait for a decision from the FED.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading