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.
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