With markets now approaching high summer when as traders and investors we can expect a general slow down and draining away of liquidity, it is perhaps appropriate ahead of next week’s FOMC to consider the US dollar index on a weekly time frame.
The chart we are using for this analysis is not the usual highly euro weighted DXY, but instead an index based on four currencies which are equally weighted. These currencies are, the euro, the British Pound, the Japanese yen and the Aussie dollar.
From a technical standpoint the established for the US dollar from August 2014 finally ran into resistance in the 12150 price region, a level that was tested once again in mid April this year, before the index reversed on a cooling of FED rhetoric with regard to a likely rise in interest rates. The bullish engulfing candle of mid May then propelled the index back to the 12000 level with a further minor reversal of early June once again failing to follow through.
The lack of follow through in June has resulted in the index managing to climb steadily higher for most of July, although without any great momentum. Despite this the important point to note is the upwards trend in the lows of the week which continue to signal an index that remains bullish.
The price action so far this week has continued to reflect the lack of momentum with the index trading in a narrow range between 11975 to the downside and 12055 to the upside, and with the issues in Greece now temporarily out of the spotlight the market will, no doubt, focus on next Wednesday’s FOMC statement as well as the Advance GDP number the following day. Either or both of these may provide the catalyst for a move higher, but for any momentum to develop we will need to see a break and hold beyond the 12070 region which would then provide a platform for a more sustained move through the 12150 high and a pick of up the longer term bullish trend for the US dollar.
By Anna Coulling
Charts are from NinjaTrader and the trading indicators from Quantum Trading.
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