Let’s take a look at these chart structures and the key levels to watch going forward.
We’ll start with a quick Daily Chart view of the Broadening Formation already in motion:
I’ve been highlighting the Broadening Formation to Weekly Intermarket Members and so far, the pattern has held up nicely.
Simply, if the pattern continues, the next swing would be expected to break support at 81 and travel lower toward the trendline intersecting the 79.50 level.
Note the pattern midpoint or ‘value area’ into 82.50 which represented August’s swing high.
Before we assume that the Dollar will simply continue this pattern and trade to the lower level, let’s see the simple picture – and a competing trendline – on the Weekly Chart:
Based on the Weekly Chart, it would seem that the next swing for the US Dollar would simply be a strong rally back to the upside toward the 85 level or higher to continue the uptrend in motion.
It’s the competition between short-term Dollar bears and longer-term Dollar bulls that will determine the next tradable swing for the index.
A breakdown under 81 suggests that the index will indeed fall toward the 79.50 level to fill-out the Broadening Pattern formation and retest the price lows from earlier in 2013.
The only chart-factor stopping this ‘price pattern decline’ is the weekly trendline and one more factor seen on the Daily Chart:
I highlighted two price levels – the first being the 81.50 support level which broke last week.
This set-up a play toward the next lower support level – and the weekly trendline – into the 80.50 index level which is just under the 81 ’round number’ index level at which the Dollar rests currently.
Note the two short-term reversals (January and June 2013) that occurred at the 80.50 region.
I wanted to show these competing trendlines as a caution to those who may not see the other timeframe and the competing signals that traders may take as a result – or the stop-losses that will trigger under 81 and 80.50 which could result in a Broadening Pattern continuation move toward the 79.50 trendline.
Be safe and watch the Dollar Index very closely in the week ahead relative to the 80.50 and 81.00 index levels.
This article is brought to you courtesy of Corey Rosenbloom from Afraid to Trade.
Related: PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP), PowerShares DB US Dollar Index Bearish (NYSEARCA:UDN).