A strong U.S. market is usually accompanied by a strong dollar, but in this case the currency index remains stubbornly low, locked between 91 and 95. This weakness helps U.S. exports but, on the reverse side, makes imports for business and consumers more expensive These are generally seen as negative impacts for domestic economic growth.
The dollar fell below the long-term support level near 93 in September. It has again dropped below that critical support level.
Below that level lies a new potential support level near 91. This level acted as a rebound point in September and traders will keenly watch to see if it can fill this function again in 2018.
A successful retest and rebound from 91 creates a double-bottom pattern. That's sometimes called a W pattern. The depth of the pattern is measured and used to set upside targets. The first target is a retest of the peak of the W near 95. This potential target is 99.
The potential support level near 91 is not strong. It is not a historical support level and this suggests potential weakness. The strong historical support level is near 93.
Starting in August of 2017, the dollar oscillated around the 93 value. The lower edge of the oscillation is 91.
The upper edge of the oscillation is near 95. If the future rebound from support near 91 fails to move above resistance near 95, then this oscillation pattern will develop into a sideways trading band or consolidation band.
The Guppy Multiple Moving Average indicator shows a strong downtrend remains in place. The rally towards 95 was near to the value of the lower edge of the long-term GMMA.
The dollar retreated from that strong resistance feature. The long-term GMMA shows no signs of compression and that suggests the downtrend continues to develop strength.
A change in the downtrend is signaled when the long-term GMMA begins to compress. Any continuation of political instability in the U.S. means the dollar could potentially dip below the lower edge of the trading band near 91.
The weekly chart shows there is no strong support or consolidation areas between long-term historical support near 93 and 85. That suggests that any sustained move below the new support area near 91 could quickly fall to 85. That's the most significant feature of the dollar index chart.
Traders will short the dollar if support near 91 is not successful. We use the ANTSSYS trade method to extract good returns from those potentially fast movements.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.