The $0.89 target acted as strong resistance in 2008, 2009 and 2010. In December 2008, the market retreated from $0.89 to support near $0.79. This was repeated in March 2009 and again in June 2010.
Consistent behavior near $0.89 suggests there's a high probability the dollar index will retreat rapidly from this rally target.
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However, there's is an important difference this time around: good support near $0.84.
The $0.84 level was tested as resistance in July 2012 and again between May and July 2013. This suggests that any retreat from $0.89 will find support near $0.84, thus there's a lower probability that the dollar index will retreat and retest support near $0.815.
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Resistance near $0.89 is well-established. From March to August 2004 and from July 2005 to March 2006, it acted as support. This suggests that if the dollar index breaks above resistance near $0.89 there's a strong probability that any further rise will be limited. The next technical target is $0.94, which was a support level in 1997, 1998 and 2003.
The short-term outlook for the dollar index is a rally continuation towards $0.89 followed by a retreat and retest of support near $0.84. This is a good long-side trade using ANTSSYS trading signals. Then traders will look for a consolidation in the trading band between $0.84 and $0.89.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – www.guppytraders.com. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.