Chart of the Week - US Dollar Index

USD Daily Chart - Continuing to Rally Strongly but Approaching Overbought Conditions

Short-term Traders/Tsupiteros:	Medium-term/Position Traders:
Support - 77.50	Support - 74.00
Resistance - 80.00	Resistance - 82.00 / 85.00
Trend - Up	Trend - Sideways
Recommendation - Hold	Recommendation - Trade the range

For this week's chart of the week, I decided to feature the US Dollar Index (USD), which has had a tremendous run-up in the last couple of weeks. A lot of people were so bearish on the Dollar that people got very, very surprised when it rallied very strongly. The question now is, could this be nothing more than a dead-cat bounce, or, could this rally actually be something sustainable? To analyze, I've showed above a nine-year chart of the US Dollar Index.

First, let's analyze the long-term chart of the USD by looking at its monthly chart above. You can see the huge fall-out in the USD in the last few years. From a high of 120.00, the index has fallen to as low as 70.00 in early 2008. There was a big rally in 2008 then followed by another drop this year. What can we make of this chart? While the USD is still certainly in a downtrend in its monthly chart, you may notice that its downtrend is no longer as strong as compared to its declines in the early 2000s. In fact, I would have to say that there is even a possibility that the USD may actually already be bottoming out at this point. But that may be too early to say. Suffice to say that its downtrend is no longer strong and that the index may now move within a sideways trend, somewhere between 70.00 and its high last year at 90.00.

Let's go one time-frame lower and analyze its weekly chart. In this time-frame, you can that prices may have already bottomed-out at the 74.00 level. After almost a year of decline from its peak at 90.00, the USD appears to have finally hit the bottom at 74.00 a couple of weeks ago. In my opinion, this rally may be the real thing and is not just a dead-cat bounce. If you look at the chart above, there is a possibility for the index to climb up to as high as 82.00 to 85.00. In my opinion, the USD is finally forming a range between 70.00 and 90.00 in the long-term and was confirmed by this bottom at the 74.00 level. I wouldn't be surprised if it forms some sort of a triangle at these levels, that is, if you look at it from a long-term perspective.

In the short-term, obviously, there is a very strong rally happening right now. Up to where will this rally end? It's very difficult to say but suffice to say that prices may now be a bit overbought and is now probably a lot closer to its highs than to its lows. However, since I have a bullish prognosis in the medium-term, I would tend to treat any corrections in this time-frame as an opportunity to buy.

Since the USD has implications in the commodity markets and stocks that are related to some of these commodities, it is very, very important that we know where the USD is heading. Since the USD is looking bullish right now, does that mean that any commodity-related stocks like mining are bearish already right now? For the meantime, I believe so. However, remember, the index is merely consolidating or moving sideways in the medium-term, thus, there will come a time when the index will become overbought. Once it does that, then, that may be time to buy commodities and other commodity-related stocks like mining, once again. The levels to look out for will be 82.00 to 85.00. I would look to buy mining stocks once the USD hits those levels.

Short-term Traders/Tsupiteros vs. Medium-term/Position Traders: Recommendation for short-term traders or Tsupiteros are meant to be used by traders whose holding period are limited to one day to two weeks. Medium-term or position traders are meant to be used by traders whose holding period are two weeks to three months. Long-term investors whose holding period is more than three months should not follow these recommendations.