U.S. dollar – what next?

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The U.S. dollar has been on a tear during September as a deteriorating global economic outlook and debt concerns spooked investors. However, the greenback sharply reversed course since the beginning of the month. Where to from here? Chartist Arthur Hill of StockCharts.com provides a short review below.

The U.S. Dollar Index ($USD) was hit hard this week with a 2.2% decline. Weakness in the dollar buoyed oil and stocks, which have been negatively correlated with the greenback. Dollar weakness and euro strength is also associated with the risk-on trade. Despite this week’s decline, the bigger trend is still up and support is close at hand. The first chart shows weekly prices with a double bottom breakout when in September $USD broke resistance with a strong surge that was confirmed by RSI, which broke to its highest level in a year.

The second chart shows more details with a daily candlestick chart. There are three reasons to expect support soon. First, broken resistance in the 76 area turns into support. A “throwback” to broken resistance is not uncommon after a breakout. Second, a move to the 76 area would retrace 61.80% of the prior advance. Third, RSI moved into the 40-50 zone. This area acts as support during and uptrend.

Source: Arthur Hill, StockCharts Blogs, October 14, 2011.

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