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Dollar Index: The Chart Everyone is Talking About

Tuesday, February 21, 2017 9:04
% of readers think this story is Fact. Add your two cents. / by Marc Chandler / February 21, 2017

Here is the chart nearly everyone is discussing.  The Dollar Index appears to be carving out a potential head and shoulders pattern.  The left shoulder was shaped by the rally to 102 after the US election.

It fell a little below 99.50 in early December before launching the year-end rally that took it toward 103.80.   That area was retested in this year before the downtrend in January and forms the head of the pattern.  The Dollar Index bottomed on February 2 near 99.25.  It has rallied this month and reached 101.75 last week to frame the right shoulder.

The neckline is drawn by connecting the early December and early February lows, as we have done on this Great Graphic, created on Bloomberg.  The importance of such chart patterns lies in the measuring objective.  The pattern is a little more than a 400 point pattern, which when flipped over, suggests an objective of around 95.50, which is the around where the Dollar Index consolidated last August and September.

We are not convinced it is a head and shoulders top.  Often volume numbers are helpful in validating a pattern, but in the foreign exchange market, daily volume is not accessible.  At a minimum, the pattern requires a break of the 99.25-99.50 area, which also houses the 38.2% retracement objective of the rally since last year’s lows in May below 92.00. Other technical indicators, like the RSI and MACDs, are trending up.


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