This coming week could be important for the US dollar, and therefore the FX markets in general. The best piece of advice I have ever been told is that “if you get the direction of the US dollar correct, then it makes like easier for the majority of markets.” Because of this, I always look at the US Dollar Index before the week begins. Because of this, I have noticed a few things would paying attention to.
The first chart is the US Dollar Index on the weekly timeframe. The market had formed a massive double bottom that I have marked, and screamed to the upside. At this point, we are starting to test a major area on the longer-term charts. Notice how we are looking at the 94.50 – 95 area, an area that has been important more than once as resistance. In other words, we may have a breakout coming. It is also worth noting that the 38.2% Fibonacci level is being tested as well. Also, you can clearing see that we tried to break down last week, but fought for neutrality.
The next chart is the US Dollar Index on the daily timeframe. The market has seen a “golden cross” recently, with the 50 day EMA crossing above the 200 day EMA. The candlestick on Friday was a bit negative, but it is worth noting that although the other markets we acting in a “risk on” type of attitude, the dollar held its own. Also, the huge miss in the jobs figure, with the US adding 194k jobs last month vs. the expected 500k, one would have thought the buck would have been hammered due to the idea of the Federal Reserve perhaps delaying tapering. However, traders seem to still believe that the Fed is going to have to taper because of the inflationary issues globally.
Regardless of what happens next, its likely that we are going to see some kind of bigger move. I will be watching this weekly chart for signs of where to go next. I suspect that there will be a nice opportunity to either buy/sell the DXY, or perhaps buy/sell gold, as there is a strong negative correlation between the two.