Technicals | Oct 02 2014
Bottom Line 01/10/14
Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: 84.00 / 81.90 / 81.30/ 79.16
Resistance Levels: 
86.00 – 87.00 / 94.00 / 97.27
Technical Discussion
As we keep saying for the U.S Dollar index, the big question now is whether the multi year period of lower interest rates and a weaker currency has done its job, and is now going to be replaced by rising rates and therefore a stronger dollar. Even though an initial rate rise has been clearly flagged and well and truly priced in on our price chart, you'd have to think the Fed will stay cautious about acting too aggressively on such matters. So an initial rate rise does look to be a given shorter term, yet it is likely way too early to suggest a succession of hikes is going to become the norm. They have managed policy well over the past 5 years in this part of the world, so it is difficult to believe that an aggressive stance on interest rate rises is now going to be applied. As such, this could well mean a resting phase soon on what has been a stellar performance from the Greenback over the past 5 months or so.
Reasons for optimism (yet neutral stance remains):
→ technical factors have turned more positive
→ price well above the 200 day moving average yet it now needs to stick
→ interest rate hikes now being floated which is bullish the currency
→ unemployment in check and lowering
→ bullish breakout only above resistance zone circa 86.00 – 87.00
'We are not going to get too carried here just yet…. anything below the 86.00 – 87.00 price zone is still within the multi year range.' This resistance zone is strong as stated previously and may still take sometime before it can broken above with enough attitude to suggest the bearish tide has turned. The 5-wave move higher has been impressive though with volume attributes for most of the move indicating strong buyer presence. As price has drawn closer though to overhead resistance, buyers have a started to step away a little, and with price last night tagging 86.34 intraday, it is now time to see just how strong this potential inflection point is going to be. With price not having retested this area since July 2013. Post 5-wave completions, we generally see 3-wave counter trend moves with price unwinding back into the typical 50.0% – 61.8% retracement zone which in this case aligns 82.72 and 81.87 respectively basis last nights high. So how price reacts right here is going to provide an indication of just how bullish this move off the May 2014 lows really is. A convicted move above 87.00 that sticks will revert our neutral stance to bullish, whereas a rejection right here followed by a deeper retracement will continue to keep the analysis on its longer term neutral course. Price does look stretched, and some Type-A bearish divergence continues to linger, yet you can't argue with the strong upside that has been witnessed here.
Trading Strategy
The multi year range is between 79.00 and the 86.00 – 87.00 zone. So with this still being in place, price is technically still range bound. That said, we have missed out on a solid upside move from a trading perspective which is a little disappointing. You don't see these types of moves everyday so we certainly would have liked to have been on board. Basis our review tonight though, now is not the time to be thinking about getting on board. Price is going to require a breather at some stage, and sooner rather than later on this now looks likely. We'll keep an eye on it.
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