Technically Speaking

US Dollar Index Downtrend Over?

The U.S. Dollar Index made new lows in price while momentum indicators turned higher, a sign of a potential bullish divergence. (DTN ProphetX chart)

U.S. Dollar Index:

The dominant technical feature for the U.S. Dollar Index has been the persistent downtrend dating back to late May. After a period of consolidation and correction in mid-June, the downtrend accelerated before turning consolidative the last two weeks. The U.S. Dollar Index downtrend could be over for the time being based on wave counts and momentum. The preferred wave count for the U.S. Dollar Index would have included wave 1 from 102.9920 to 98.2890 in late March followed by wave 2, which spanned from March 30 to May 14 in a flat corrective sequence. Wave 3 went from 100.5560 to 95.7160 in early June followed by wave 4 to 97.8020 and finally wave 5, which culminated on Aug. 18 at 92.1270. One reason for the concern about higher prices is the fact that price made new lows on Aug. 18 while momentum made a series of "higher lows." This is a clear bullish divergence with price, which will be confirmed with trade above the 93.9050 corrective high from Aug. 12. These issues considered, a bearish policy remains advised in the U.S. Dollar Index with bears to be watchful of strength above a prior corrective high like that from Aug. 12, which would confirm the downtrend as over and assume higher prices straightaway.

December Gold Futures:

After one of the most impressive uptrends of 2020, gold futures have flipped short-term trends down with late money turning weak. The all-time high set on Aug. 7 has all of the characteristics of a major top from the outside-reversal lower, downtrending momentum and impulsive behavior to the downside. Major moving averages sit well below spot prices but could come into play without much additional correction. On-balance volume is still in positive territory at 2,039,783 contracts but is trending lower in a sign that volume is larger on down days than up. Fortunately, this market has outlined two risk parameters from which to gauge bullish and bearish exposure. To the upside, the Aug. 18 corrective high at $2,024.60 and to the downside the Aug. 12 corrective low at $1,874.20 are the key directional guides to this market. Until one of those risk parameters is violated, a neutral-to-bearish policy is advised at this time.

September E-mini S&P:

After one of the swiftest and most severe corrections in recent memory, the E-mini S&P 500 market has pushed to all-time record highs overnight with no direct technical resistance above spot prices. Derived technical levels like Bollinger bands, Fibonacci lines and Ichimoku clouds can provide objectives, but not reliable resistance candidates the way previous price action can. When the E-mini chart is converted to a logarithmic scale as opposed to a linear scale, the February to March correction looks much smaller in scope as compared to the tech bubble in the late-90s or the financial crisis in 2008. Momentum indicators from a weekly scale are still pointed decidedly higher without any indication of a divergence from price, something that would stick out like a sore thumb as prices move to record highs. A bullish policy remains advised in this market until or unless a corrective low of merit can be violated. At a minimum, this would require trade below the June corrective lows.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.

Tregg Cronin can be reached at tmcronin31@gmail.com

Follow Tregg Cronin on Twitter @5thWave_tcronin

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