Over the past few weeks Ben Bernanke has single-handedly managed to create the biggest market sell off since the dark days of 2008, whilst simultaneously draining any demand for anything except the US Dollar.
It is against this background of no demand for equities, commodities or bonds that we turn to the only chart of any significance, namely the Dollar Index, in particular the daily.
Today’s price action for the dollar has once again been bullish, building on yesterday’s momentum which saw the index climb through the 83 price region to trade, at time of writing, at 83.16. The reversal in fortunes for the US dollar was firmly signaled two weeks ago with a classic chart set up in the form of an 8 candle pattern with narrowing spreads, as the price action bottomed out.
This is a similar pattern to that often seen at a market top where price exhaustion is being signaled.
In this case, the reversal was given further impetus by the appearance of two gravestone doji candles immediately prior to the first wide-spread up candle of 19th June which was the trigger for the current rally.
The question now is how far the index is likely to rise, and from a technical perspective we now have two areas of potential resistance directly ahead. The first is at 83.40, which saw reversals in both March and April whilst the next is at 84.50, the reversal level of late May. Both of these are significant and the index is now testing the underside of the first, and if breached, then we could see further upside momentum for the US dollar in due course.
However, from a fundamental perspective, provided Mr Bernanke does not step in with further ambiguous statements, the markets may settle and traders and investors may return to risk, which now seems increasingly likely given the technical picture on some of the major indices.
By Anna Coulling