Will Support Hold Up in the Dollar?

While the dollar has been in an uptrend for the better part of the year, the currency has been getting squeezed over the last couple of weeks. First lets take a look at some of the signs that poked their head up to some possible dollar weakness and then we’ll discuss some support levels in $UUP.

First we had the divergence in the Relative Strength Index. Earlier this year we broke above 70 to get an overbought status, which isn’t the yellow flag in and of itself. What was worrisome was when the PowerShares US Dollar Bullish ETF ($UUP) broke to a new 2013 high, momentum was unable to push above 70.

In the bottom panel of the chart we have the On Balance Volume. This indicator can be helpful in seeing if buying volume is outpacing selling volume. Just like the RSI, On Balance Volume put in a negative divergence as $UUP broke out to the upside. So as price was continuing to strengthen both momentum and volume were not sharing in the bullish sentiment which eventually lead to lower prices.

With this period of decline $UUP has fallen to two levels of support. First we have the trend line off the February low. We are also at the 61.8% Fibonacci Retracement between the February low and May high. Turning our focus back to momentum, the Relative Strength Index is a few ticks below the bullish channel we would want to see for the dollar to catch a bid, however it hasn’t quite been sucked into oversold territory quite yet.

The Euro appears strong this morning so we may see a trend line break if dollar bulls don’t step in soon.

UUP

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

U.S. Dollar Bullishness Hits Record High

I’m pretty busy this morning but wanted to get this one chart posted. The dollar has been rallying since February and the PowerShares U.S. Dollar Bullish ETF ($UUP) is up a little over 4% from its 2013 low. This  bounce in the dollar has caused  a large shift in bullishness for the U.S. currency, with long positions hitting record highs based on COT data.

Here’s a chart produced by SentimenTrader via Business Insider that shows the number of net long positions of large speculators (which are primarily hedge funds) in the dollar hitting record highs. It’s important to note that past peaks in net long positions have not been associated with highs in the dollar. Just like in equities, we typically see sentiment top out before price does. So while it’s possible for the dollar to take a breather, this frothy sentiment isn’t as short-term bearish as some would have you believe.

US dollar

Source: The Number Of Bets On The US Dollar Has Never Been Higher (Business Insider)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

Dollar Creating a Head and Shoulders Pattern

No, the U.S. dollar doesn’t have a dandruff problem (sorry, bad joke). There seems to be a lot of discussion, at least by those I follow on Twitter and in the blogs I read about the bearishness of the dollar. There has been a head and shoulders chart pattern that’s setup in the PowerShares US Dollar Index Bullish ETF ($UUP) that gives credence to those negative on the dollar.

This pattern gets discussed pretty often as it lurks it’s bearish head. One of things that frustrates me when I see it mentioned is the lack of analysis given to volume. With price action creating the necessary chart pattern, this only gives us half the equation. What many people leave out is the necessary volume requirements associated with a head and shoulders pattern (H&S). Like many setups, volume typically trails off during the patterns completion. H&S is no different.

The largest amount of volume should be observed during the top of the left shoulder, when the head is created volume should be slightly lower and then even lower when we get the right shoulder. By each rally attempt being accompanied by weaker volume we can see the bears stepping in and whacking down any attempt at an advance. This is part of what makes the pattern bearish.

UUPWhen looking at the above chart of $UUP we can see that volume does in fact confirm the H&S pattern that price is showing us. From here we are looking to see if price falls below the trend line, completing the pattern. It’s important to remember that oftentimes when price breaks the ‘neck line’ of a H&S pattern it will bounce and re-test. This can act as a confirmation of further weakness if what once was support becomes resistance.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.