U.S. Dollar Index

USD INDEX

The U.S. dollar index has been trading within a major long-term ranging pattern, as shown on the weekly chart above. The index has been moving among a giant pennant-like formation, fluctuating among its support and resistance levels.

The latest peak in July was a retest to the top of the formation, however the index failed to follow through, retreating back and breaking below the latest swing low of the wave at 81.16 which was the initial trend reversal signal. Meanwhile, the index has settled back below the cluster of long term 6-month moving averages (high, low and close).

During the past weeks, we have seen a retest of the this broken low at 81.16 and the cluster of averages, which provided a potential bearish setup as the index may be in the process of resuming the bearish wave that started from the top of the pennant.

Accordingly, if a bearish move follows, that will complete forming the right shoulder for a possible Head and Shoulders pattern, as shown on chart. A continuation below the neckline of the projected pattern currently around 78.80 would be a major bearish signal, and clears the way towards the bottom of the pennant currently around 74.00 areas.

The suggested bearish scenario will remain valid so long as 82.85 level is intact.