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Left Scratching Our Heads A Tad Looking at the Dollar Index
Written by article default Monday, 18 July 2011 09:10
The two trends that we had been closely watching and had thought would direct trade were both broken in the space of two days but leaves no clear directional picture. Firstly, the series of lower tops posted by the Dow Jones FXCM Dollar Index (ticker: USDollar) was what we were watching on the resistance side, determined that it would take a break of this trend to mark the beginning of a significant shift in structure. Last week, this trend was technically broken as the spike above 9750 is clearly higher than the 4th lower top. Due to current turbulence the index was unable to build on this break, and rather collapsed completely. And, in a matter of hours was testing the rising support trend line off early May lows which has been containing index losses. Our theory from the lower tops applied just the same way for the rising trend line; a clean break would have to be made ahead of any re-test of those May lows. Well, the line was broken, but only for the index to subsequently climb.
As a result we are left scratching our heads a little, while we have one very easy explanation; the despite the technical nature of the break of both the lower top series and the rising trend line, neither closed above/below the level and therefore the trends remain in tact. This to us however, sounds like a half measure and prefer conclusive thoughts. Therefore, at this juncture we are still not prepared to suggest a directional bias and we remain content with our assessment that trade is likely to remain range bound (as we articulated last week).
Written by Jonathan Granby, DailyFX Research Team