US Dollar Index Forecast August 23, 2012, Technical Analysis

The Dollar Index had a very bearish session on Wednesday as the Federal Reserve releasing its minutes from the previous month’s meeting. It appears that there is more of an appetite for quantitative easing out of the Federal Reserve than what was previously thought, and as such it makes sense that the US dollar lost ground overall.

Looking at this chart, you can see that the 81.50 level is significant in its support of this contract. In order for the dollar to really get beat up over time, the 81 level has to be overcome on the downside for the support to have finally been broken. After all, this is the site of a gap in the chart, and as such that will have to be taken out in order for traders to become completely comfortable shorting.

It should be noted however, that the Federal Reserve didn’t exactly kill off the dollar either. The fact that we didn’t have a massive selloff and only lost about 0.46% at the end of the day suggests that there are still plenty of people out there that are willing to buy the US Dollar, and as such we could see a bit of a muted response once it’s all said and done. After all, the Euro is over 40% of the value of the US Dollar Index, and as such as long as the Europeans have problems there will be a build in bid for the US Dollar.

Looking forward, we can see that the level we are at currently is the bottom of a much larger consolidation zone going all the way to the 84 handle. In fact, if you are willing to go long at this point in time you could perhaps bottom pick the market. We all know trading like this is somewhat dangerous, but the risk to reward ratio is absolutely incredible. Because of this, we are willing to put on a small position long to see what happens going forward. With this in mind, we are only buying until we get below the 81 handle on a daily close.


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