The U.S. dollar index just registered a strong bullish signal - and Dr. Bauer explains that the uptrend is only beginning.
| | | | | | The U.S. Dollar Index Finally Breaks Out |
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|  Dear Reader,
At the moment, the US dollar is flexing its muscles against other major currencies. Nothing stands in the way of a new upward trend - one which could surprise much of the market.
What is the U.S. Dollar Index?
For those unfamiliar with the U.S. dollar index, it is a measure of the dollar's value against a basket of international currencies. The index was introduced in 1973 and is listed on the ICE (Intercontinental Exchange) futures exchange.
It is possible to trade U.S. dollar index futures, but the turnover is very low. Rather, the index is mainly used to gauge the strength or weakness of the U.S. dollar against the other currencies in the index.
Currently, 57.6% of the index consists of the euro, 13.6% consists of the Japanese yen and 11.9% is made up of British pounds sterling. The remainder is made up of Canadian dollars, Swedish krona and Swiss francs. The index thus represents the most important industrial currencies and therefore serves as a yardstick for the strength or weakness of the dollar or the euro. If the US dollar index rises, the euro falls.
Starting Signal for a New Upward Trend
The U.S. dollar index has been moving more or less sideways for the past three months. But as the following long-term price chart shows, it recently exceeded a resistance level which has held for years. In the weekly chart below, where each candle is formed from the price data of an entire trading week, this resistance level is marked by the green line. |
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| | | | | | | | | The U.S. dollar index has formed two lows around 90 points this year. The index recently registered a strong technical buy signal after exceeding the green resistance line and completing a W-formation. The two yellow circles below the line show the two W lows.
The high between those two lows was just exceeded as the index crossed the green line. I have also marked this movement with a yellow oval. In the next few weeks, I see one price increase after another coming our way.
The 200-day line has also already turned upwards again and is now rising. In the next few months, we can therefore expect further gains in the US dollar index to somewhere between 93 and 100 points. The probability of such a move has never been higher in recent memory.
All Indicators Point to Buy
The bullish trend is also evident in the following daily chart. It shows four indicators below the index. I check if several or all of them are on buy or on sell. As you can see, currently all indicators are pointing up and thus to buy - shown as green arrows. So the US dollar index looks set to continue its journey north.
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| | | | | | | | | What Does this Mean for the Euro?
When the U.S. dollar index rises, the corresponding counterpart currency pairs tend to weaken. So, if my analysis is correct, the EUR/USD currency pair must fall just as sharply - to the 1.10 area.
Kind regards, |
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| | | Dr. Gregor Bauer
Chief Analyst, European Markets
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