Evening all,
First, I want to wish all of you a belated blessed christmas. I hope your festive season went well.
Today, I have a chart of the US Dollar index. In general, the greenback should have an inverse relationship with equities. In November and December, while equities made a somewhat surprising climb, the US Dollar fell (EURUSD at levels not seen for at least half a year). This rally happened despite whatever cliff talks/scares made headlines. Sidetrack: I read an article online and saw the word “cliff-mas”! Anyways, I was long and happy since I played certain stock CFDs on the long side. Ever since my last post on forex, I have not been active in that market.
The Dollar index was in a straightforward uptrend from 2011 to the middle of 2012. After that, the greenback got hammered and fell below 80. In the chart below, you will see 3 boxes. I box up 3 regions of price to show the popular chart formation of a head and shoulders. I like to describe such a pattern as consisting of 3 regions of price. Right now, the US Dollar is forming the right shoulder.
Naturally, I will be looking at this pattern as a topping one. The long-term uptrend in equities looks even better now compared with 2 months ago because of a rally out of a healthy correction. And, take note that the Dollar index is clearly below the 200-day MA. I will continue looking for long set-ups in EURUSD and see if this pattern does end up being a top.
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