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Reversal on the dollar!

The dollar is coming back from the shadows. USD suffered a heavy blow at the hands of the Fed last week, when we found out that we should not count on many hikes this year. The drop caused by that fundamental factor was also very important from a technical point of view. It allowed for a breakout of the long-term upwards trend line (blue), which has been connecting higher lows since May.

That should be great for the bears right? Well, yes, it would be if only they’d managed to stay below that line. The yellow rectangle on the chart shows us a false breakout, indicating that this movement was fake. On Thursday, the US Dollar Index created a bullish candlestick with a long tail, which showed us that sellers were not very committed to that breakout.

DXY Daily Chart

DXY has started the new week on the front foot. The index broke the blue upwards trend line only to come back above it. That is the last step in a proper false breakout pattern. Once we close the day above the resistance, we will get a proper buy signal. An additional bullish factor here is that we are still inside the wedge pattern (black). The wedge is a trend continuation pattern and the main trend here is bullish. A breakout of the upper line of this formation will be confirmation of a buy signal.

The buy signal on USD will be cancelled if we get a breakout of the lows from the last month, although the chances of this happening are currently rather limited.

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