Long Term View - Dollar Index 14 Oct, 13

Long Term View – Dollar Index

Long Term Trend: Consolidating since 2008, but after 2011 it has been in up trend.

Mode: Cyclic, but one Cycle Indicator has indicated beginning of down trending prices which has to be confirmed by major cycles.

Cycle Analysis: There are two long cycles currently going on, one started from E, and other from G. Both cycles peaked at H and are now in downside. Shorter cycle will bottom out in Jan 2014 and longer one in Sep 2014. There are some short term cycles which are near their bottom and can cause a pullback. So there is neither a clear buy situation, nor a sell situation. But since there are indications of a down trending and prices are also following the downside of major cycles, therefore more downside should be expected. 77 seems to be possible by the end of this year.

•          Sell Signal: Last long term Sell signal was in June 2013. Since cycles are on downside and there is warning of down trending, Sell signals can be expected on a rise.
•          Buy Signal: Wait for a long term Buy signal till downside of cycles end or if there is an unexpected upward reversal of major cycle. Since there is an early warning of a down trending market, buying should be avoided.

Conventional Technical Analysis: There are three indications of a further downside –

1.        Price has broken Fibonacci 50% support level
2.        Price has broken last support of the speed resistance lines
3.        The momentum indicator (bottom panel), had given a clear redistribution sell signal at H peak, where the indicator had a lower peak compared to its previous peak.

All these three are bearish setups, indicating more downside till its next support.

Key S/R Levels: (applicable till Dec 2014)

•          Resistance Levels: 81.2 – 82 – 82.8 – 83.5 -85
•          Support Levels: 79 – 77 – 76 – 70
•          Hidden Levels (Important S/R levels which cannot be identified by traditional tools): Hidden resistance levels are shown by two red lines, and support levels are shown by two green lines in the chart.

Risk: Major cycle may turn up before reaching its bottom, or prices may start following upside of some minor cycle which may increase the threat further if cyclic market becomes up trending. In terms of price levels, a breakout above 81.2 may take prices to the next resistance level.

Recommendation: Cycle analysis as well as conventional technical analysis; both are indicating more downside for Dollar Index hence long term entry should be avoided. Short selling opportunity may arise on a rise. Investors should be alert for upside risk as mentioned above.