The US Dollar Index (USDX, DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of US trade partners’ currencies. Source Wikipedia The trade-weighted US dollar index, also known as the broad index, is a measure of the value of the United States dollar relative to other world currencies. It is similar to the U.S. Dollar Index in that its numerical value is determined as a weighted average of the price of various currencies relative to the dollar, but different currencies are used and relative values are weighted differently. Source Wikipedia

The reason I review the US Dollar Index everyday is it allows me to understand what the Dollar has done for the recent past, what the Dollar is doing at the moment and what I expect the Dollar to do in the near future. This helps me identify a bias on the US Dollar which I use when trading US Dollar pairs.

How to view this technical overview
1. Support and resistance zones shown in green and pink. Bulls buy at support and bears sell at resistance.
2. Keep in mind that when price breaks through support the level will be tested in future as resistance – this is called role reversal.
3. Market direction indicated by 21 and 55. Take note of where the 21 is in relation to the 55 and where price is in relation to the 21. Also take note of the width between the two moving averages. If price is below the 21 you may consider looking for selling opportunities. If the 21 is dynamic resistance then if price falls from the 21 it predicts a lower low – the opposite applies when the 21 is dynamic support. If the 55 is dynamic resistance then if price falls from the 55 it predicts a double bottom – the opposite applies when the 55 is dynamic support.
4. Direction of price is indicated by 5 and 8 MA’s and stochastic cycles. Remember that when you line up higher and lower time frames, price is going in the same direction. The goal is to line up market and price while using support and resistance as your leading indicator.
5. Pay attention to reversal patterns on higher time frames when in a trending market – a reversal pattern could mean the end of a trend. Keep in mind that a reversal pattern that is not at support or resistance is meaningless.
6. Pay attention to reversal patterns on lower time frames when confirming your entry and if you want additional confirmation wait for a 5 8 cross on M5 or M1 before entering your trade. Remember – we enter on the second chance on the 5 minute chart.

a. Please read Kate’s post on Forex Major Currencies Outlook everyday so you are up to date with the latest news. You can follow Kate here
b. Please be aware of risk events for the day by using the Forex.Today calendar
c. Watch Wayne’s webinar daily at 13:30 SAST or catch the recording on the Forex.Today Youtube Channel

USDollar Daily

Dollar is currently moving towards the top of the range on the Daily chart. Notice the 21, 55 and 200 EMA's are flat - this means there is no trend, hence the range. Take note of the stochastic - moving up. When price arrives at the top of the range we can expect resistance. Remember, resistance holds 100% of the time until it breaks.

USDollar H4

Price is currently at the weekly Bull profit zone. We saw a breakout of the previous range so price could return and test previous resistance as support. I have highlighted this area in green - notice that it coincides with the fib zone of the bullish move. Also take note of the 21 and 55. The 200 EMA is still flat though price is above.

USDollar H1

Price is currently at the daily Bull profit target. Take note of the 21 and 55 - bullish market. I see support at the 21 EMA and the fib zone. Keep an eye on price action on lower time frame charts when at resistance and when at support. If we start seeing Dollar weakness then look to the support areas for a continuation of the bullish direction. Also keep a firm eye on data coming out of America for the rest of this week leading up to NFP on Friday.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.