The US Dollar before a possible rebound or breakdown

Since November 2005, the US Dollar is really in a freefall. Then, it was quoted at 92.63 and now we can buy the index for a measly 75.35. The lowest point in this period was even lower, near the 74.50 price level.

What brings us to believe that the US currency has now a chance to recover a bit? It is the Technical Analysis setup that we can see in the attached weekly chart.

Some of the interesting technical analysis points are as follows:

Since November 2007, the price is in a consolidation pattern (violet rectangle) between 77.8 and 74.50. All the bad news that we got about the US economy and all the rates cutting (including the rates cutting talk from FED officials) did not succeed to drive the US Dollar lower. In itself, this is a very bullish sign.
The price channel and the 50 Days Moving Average are starting to level and move sideways. After the great extremes of last year's fall, it is a relief for the bulls to find an indicator that is becoming stable.
The last low was a bit higher than the previous one. It is true that it was really a very small difference but it is still a higher low.
The RSI and MACD are in an up move (from much oversold levels) and give us a bullish divergence with the price which is in a sideways move.

Final words:

The US Dollar is stabilizing at the lower levels of the last move down. This can be some sort of consolidation before the next leg down, but it can be a base forming before a breakup. The indicators and the price are showing that the later has more chances than the former. Once the USD will be over the down trend line (1 blue) and cross the 77.8-78.00 area, the bullish case will be reinforced. A decisive breakdown under the 74.50-74.00 level will tell us that the US currency is on its merry way to much lower prices.
US Dollar Index

Disclaimer

By no means do any part of this article recommends, advocates or urges the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author and his company express personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this article. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. The content of this article was created with the best known data at the time. The writer and his company are not responsible for the accuracy or completeness of the mentioned data. The writer is not a registered consultant of any kind and so the reader should not see any single part or the whole analysis as an advice for any kind of action in the financial markets.
We always welcome feedbacks: This email address is being protected from spam bots, you need Javascript enabled to view it

About the Author

Moshe Shalom
Head of Technical Analysis Department
ForexManage Ltd
Site: www.forexmanage.com
Email: This email address is being protected from spam bots, you need Javascript enabled to view it