Although the longer-term (yearly, quarterly, monthly) charts of the dollar index are building towards a potential buy signal during the first quarter of 2010, the weekly chart is currently moving higher off of a perfected TD Buy setup that completed in late October. Initial targets on the weekly chart were at 78.09 and 78.36. Let’s take a look now at the daily chart.
The daily chart had a TD Sequential buy complete on November 9 with an associated risk level of 74.1. These signals should be given about 12/13 price bars to work out and in this case the low came 13 bars later. A TD Combo buy signal came in one day before the low. All of this price action occurred without the risk level being broken and with a TD Buy setup perfected and in place on the weekly chart. To top it off there was bullish divergence in the technical indicators here also.
For me personally the hardest part was sticking with this market as it went sideways and then dipped down into the late November low. I failed to stick with the long position despite the fact that the risk level had not been broken and have paid the opportunity cost as the dollar has rallied sharply since.
The trend turned bullish when the swing chart (orange line) turned upwards on December 15th at 76.83. This was confirmed as the primary trend on this time scale when two days later price punched through TDST resistance (dashed horizontal red line) at 77.05. Yesterday this market touched 78.14; which is the weekly medium moving average, and pulled back. There was also old resistance at 78.16.
With weekly price targets being hit we note that a down close tomorrow will cause bearish divergence between the RSI and Composite index. However, without an accompanying TD signal we would interpret any pullback as just that - a correction within a bull move.
Bottom line: The daily Dollar Index chart is bullish although a pullback or consolidation would be indicated with a lower close tomorrow. Such a correction would mesh with what has to happen before any buy signals are made on the long term charts (a need to end December below 78.15). It will be interesting to watch and see if this plays out.
Today I start a new series of charts on the US 10 year bond yield. There is only one notable feature on the yearly chart but it is impressive. Yields (loosely interest rates) have been falling for over 25 years! At this point there isn’t even a hint of divergence between RSI and price either. Tomorrow we will see what the quarterly chart says about this downtrend.
