The U.S. Federal Open Market Committee (FOMC) meeting this week will drive the U.S. dollar movements. The direction of the movement is not yet clear in the chart analysis. The potential limits for the reactions are more clearly defined.

This highlights some important issues regrading the use of charts in analysis. They are first and foremost a tool for identifying the balance of probability of one reaction over another. Sometimes the balance is clearly tipped in one direction. This is shown with clear chart reversal patterns such as a head and shoulder, a rounding top, or the break below a key support level or trend line.

There are no well-established chart patterns on the U.S. Dollar Index, however there are well defined support and resistance levels.

The index is a basket of currencies comprising the euro, yen, British pound, Canadian dollar, Swiss Franc and Swedish Krona. The index is used as a measure of the strength or weakness of the U.S. dollar.

The second use of chart analysis is to identify trip points where a market moves into a new phase. This may be a trend line. A close below the trend line signals the end of the uptrend and the beginning of a new downtrend. With the dollar index these trip points are set by the historical support and resistance levels. A move above or below these levels confirms a significant change in the trending behavior. Traders use this as a signal to take new positions.

Gold hits the headlines but the real action is in its sister metal and one time king of the currency world. Silver gives traders leveraged access to gold. In simple terms, it's cheaper to buy contracts, you get more bang for your buck, and the returns on capital are greater. This is an alchemist's opportunity to turn silver into real gold.

Silver has several characteristics which help to understand the potential for future price behavior. The first characteristic is the fast rise in August and September this year. This was a rapid uptrend breakout moving from $28 per ounce to $35. This gives a 25 percent return. For the same time, gold gives a 10 percent return. Silver moves more rapidly, and the profit is larger.

The second characteristic is the resistance level near $35. This has been a strong support and resistance level. It was a support level in May and July 2011. It was a resistance level in November 2011 and February 2012. A successful breakout above $35 has an upside target near $43. A move above $43 has the next upside target near $50.

The third characteristic is the clearly defined trend changes. The trend are easily defined using a trend line. The fast uptrend was defined by trend line A. The downtrend defined by trend line B. The current uptrend is defined by trend line C. A move above or below the trend line gives a reliable signal of a change in the trend. This allows traders to establish reliable entry points and to set effective stop loss points. The trend behavior is more clear than gold.

Trading channels are useful to traders and investors as they show us how price is likely to continue to develop. We are given a defined range of volatility in which price can rally and retreat while still moving in the direction of the trading channel. This presents traders in particular with multiple rebound and rally trading opportunities on both the long and the short side.

An additional advantage of the trading channel is that the price projection of a breakout continues to rise as price rises. Gold continues to develop using the upward sloping channel as the general definition of the secular trend. We can see price slide down Trend line C through both the top and bottom of trading channel B.

A month ago we identified the development of a long term fan reversal pattern with the dollar/yen chart. The compression of activity between support near 78 and the value of downtrend line D increased the probability of a fast breakout and this has developed.

This week we update the notes of the progress of this breakout. The fan pattern is a long term trend reversal or breakout pattern. It's best seen on a weekly chart. The fan pattern with the dollar/yen started with the peak high at 110 yen in 2008 August. This high point is the anchor point for the four fan trend lines. It is a long term pattern.

Three weeks ago, I told CNBC Asia's "Squawk Box," that the Dow Jones Industrial Average suggested a Barack Obama victory. President Obama is not popular with many investors. They are unhappy with proposed tax changes and other aspects of his policy. As the prospect of an Obama victory increased we saw the Dow selloff.

The Index greeted Obama's victory with a more than 2 percent plunge on November 7.

The critical fall was the move below the value of trend line A and the fall below the support resistance level near 13,200.

Newton watched an apple and asked how far it could fall. When investors watch Apple’s share price they ask a similar question because the answer helps tell them when the upward momentum will stop.

The key question for Apple is not how far it can rise. The key question is how far Apple stock can fall before the fall becomes a signal of a change in trend.

A fall, or retreat, that is not a change in trend is a buying opportunity. A fall that is significant enough to signal a change in trend is a sell signal to lock in profits.

The size or daily range of the fall provides little indication of the threat to the trend. A large range on a day with increased distance between the high and the low is not an end of trend signal.

Australia's S&P/ASX 200 tock index has developed a remarkable recovery starting in June 2012. This was a classic Guppy Multiple Moving Averages trend breakout. It included three tests and retests of the long term group of moving averages.

This gave early warning of the change in investor sentiment so traders were ready to position themselves when the breakout was confirmed in July.

The upper trend line is an extension of the previous uptrend and this is now acting as a strong resistance level. The lower trend line defines the current trend breakout starting from July.

The fall below the lower trend line signals a significant change in the trend. This is the first break of this uptrend line. The retreat from the upper trend line confirms the strength of this line as a resistance level and this caps the rate of rise in the index.

The weekly chart of the NYMEX oil price is going nowhere. It remains largely impervious to the endless crisis in the Middle East and even the gusting winds of Sandy, one of the biggest storms to hit the United States.

Major disruptions do have a short-term impact on price, but these remain relatively small. It reflects a market that is slowly catching up to the changed reality of oil markets.

The changed reality is that U.S. is no longer as dependent on oil from the Middle East as it was in the past. With oil tapped in shale oil deposits the U.S. is now a net exporter of oil – a far cry from the days of oil dependency.

This new found freedom is partly what drives the more aggressive U.S. approaches to Iran, and its lower levels of concern about Middle East political disruption. Events that in the past had an oil dependant nation putting itchy fingers on the trigger are no longer as significant.

The long term fan reversal pattern on the dollar/yen chart is pointing towards a breakout from 79 with an upside target near 84 and 87 yen. A new support base has developed near 78. This was a previous resistance level. The compression of activity between support near 78 and the value of downtrend line D increase the probability of a fast breakout.

The fan pattern consists of a series of trend lines, all starting from the same high point. These lines first act as a support level, and then later as a resistance level.

The price activity is contained between these trend lines. When a breakout occurs the rally is capped and this creates the location point of a higher trend line. The fan pattern starts from the August 2008 highs near 110 yen.

Technical analysts are often accused of drawing meaningless lines on charts on the grounds that the market knows nothing about these lines. The gold chart shows how useful these lines can be in determining the limits and behavior of future price activity. The long term up trending trading channel continues to define the price activity in gold.

The projection of support and resistance lines helps to define where future price action may pause, develop a retreat, or develop a trend continuation. his allows traders and investors to prepare appropriate trading responses.
Gold has significant resistance features that cap any rapid change in the trend.