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U.S. Dollar Index, End to the Downtrend?

Currencies / US Dollar Dec 16, 2009 - 07:23 AM GMT

By: Guy_Lerner


Best Financial Markets Analysis ArticleFigure 1 is a weekly chart of the Dollar Index (symbol: $DXY). In our last look at the greenback I stated: "in all likelihood, this is the end of the down trend for the Dollar Index", and this is now fact! A weekly close over the high of the positive divergence bar (i.e., price bars marked in pink within gray ovals) has stymied the down trend. The highs of these positive divergence bars should act as resistance on the way back up.

Figure 1. Dollar Index/ weekly

However, the important questions are: 1) is this a new up trend?; 2) is this a counter trend rally within a larger, ongoing bear trend; or 3) is this a consolidation leading to either a continuation of the past down trend or a new up trend?

For now, this looks like a counter trend rally within a larger bear trend that should end around the down sloping 40 week moving average - that is, when price meets up with this important moving average. An uptrend will emerge on a weekly close greater than 79.46, and I cannot see that happening without some backing and filling, so I don't see this as a new up trend (yet).

Looking at this issue from another perspective, we have Figure 2, which is a weekly chart of the PowerShares DB US Dollar Bear (symbol: UDN). This moves inversely to the Dollar Index. The clustering of negative divergence bars (i.e., prices bars marked in pink) was a sign that the upside was limited for this ETF (or the down side was limited for the Dollar). Support is at 27.70, and a break of this level would suggest a more definitive upside move for the Dollar Index.

Figure 2. UDN/ weekly

For now, I have a "sell" signal out on UDN and the uptrend in this issue is over until another "buy" signal comes into play. Last week, UDN was a hold, but this week it is a "sell".

By Guy Lerner

    Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of and as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

    © 2009 Copyright Guy Lerner - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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