Technical Analysis: How to Tell When the Dollar Could Pivot

We wanted to bring your attention back to the U.S. dollar to highlight why technical analysis is essential.   Days after the currency found double top resistance at 102.10, it began to descend rather quickly as the Trump trade began to unwind.

However, as we noted on March 22, 2017, it’s always mindful to keep an eye on key levels of support and resistance, just as you would with any stock.  At the time of that mention, the dollar began to test double bottom support at 99.61, which held in December 2016 and again in January 2017.

That was our line in the sand.  While it would drop slightly under 99.61, the support level still held quite well.  Plus, if we look at the currency with Fibonacci retracement lines, we can see that support was firm there, as well.  In addition, our momentum indicators told us weakness in the dollar would be short-lived.

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In fact, if we also look at relative strength, Williams’ %R, and MACD, we can see just how oversold the opportunity became.

We can apply these same tools with any currency. 

In fact, here’s the USD/EUR.  Again, we can see that our momentum indicators aligned in oversold territory in April 2017 before bouncing higher.  It also found and held that support dating back to November 2016 and also found and held support at the 200-day average, too.

Plus, if we then overlay Fibonacci retracement levels, we can see the same thing.  As we can clearly see the USD/EUR firmly held support and resistance levels. 

In short, whenever you move to trade a currency at all, don’t just consider what’s happening in the global community also understand the setup technically, as well.

We have to remember that technical analysis is a clear reflection of the fear and greed generated in the markets by people just like you and me.

However, it’s not just the pivot points we should be aware of with currency. 

We also have to be aware of the trend by drawing our trend lines. 

In fact, take a look again at the US dollar.  While the latest bounce may be nice, there’s an issue to be aware of.

After a recovery, the dollar sat at 100.43.  That put it right under the 50-day moving average.  Should the currency fail at that point, as it did many times in the past, it could reverse lower (great news for gold bulls). 

However, that’s not the only thing to be concerned about.  Once we draw our trend lines, we can clearly see a defined downward slope.  Should the dollar fail at the 50-day, the downward slope continues and the dollar could see further pressure.

It’s just something to keep in mind along the way. 

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