Saturday, September 20, 2014

USD index 2008-now:A continuation or a reversal pattern?Use of Mass index as a guide

There is a striking similarity of the price action of USD index between 1988-1997 and 2008-now.In both cases, after a substantial decline, USD formed a trading range pattern(blue boxes).Apart from the visual similarity between these two time periods, we believe that there are important quality-technical differences up to now.

1988-1997

  • Time:9 years
  • Mass index signals: 4 buy signals(green arrows){buy=Mass index>26 and USD in downtrend) and 2 sell signals(red arrows){sell=Mass index>26 and USD in uptrend}The 3rd sell signal was in mid-1997 after price outbreak from the descending black line(blue circle).During the final bottom of this trading range there was a buy signal and after that an extensive USD uptrend that resulted in trading range breakout(blue circle) and a top at 120 in 2001-2002.
2008-now

  • Time:6 years (not completed pattern?)
  • Mass index signals:1 buy signal at the beggining of the trading range(2008) followed by 3 sell signals (2009,2010,2013).Currently there is no buy signal and USD price is still inside the trading range.
Taking a closer look to 2008-today formation:

-USD is in a steep uptrend (RSI overbought)
-There are 2 overhead resistance trendlines(black) currently at 86 and 88-89(top of trading range in pink).
-No new buy signal from Mass index at the beggining of the current upmove
-Mass index is starting to climb gradually.

So, for the time being we suspect that USD will stall at either 86 or 88-89 possibly along with a Mass index reading of >26.After that USD might retreat towards 79 or even 72-74.
We believe that 

  • In order for USD bulls to see a sustained USD rally above 89 first we need to have a downmove toeards the lower part of trading range along with a Mass index>26(buy signal)
  • In order for USD bears to see a breakdown of USD bellow 72 we need to see first a bounce of USD price at 86 or 89 along with a sell signal from Mass index during the current upmove and an absence of a Mass index buy signal during the following downmove.  

Bullish Scenario

Bearish Scenario