Today’s update is as much about Fibonacci Retracement and Extension levels as it looking what the U.S. Dollar Index may do next.
The correction on the greenback is not necessarily a trend correction because I don’t see that the U.S. Dollar Index on the daily time frame is in fact in an uptrend. Rather it’s BULLISH in its sentiment and momentum but has not organized into an uptrend. In fact I don’t believe the prior bearishness organized into a downtrend when prices sank from 80.00 down to the recent 77.12 low.
This first chart shows the Fibonacci Retracement and Extension levels I was watching when I was projecting where the move higher would run out of steam. Notice that it made a full (100%) Retracement and fell just nine ticks short of 80.81 level at the 127.2% Extension.
Now that the market has begun pulling back from the move higher, the question is “where is support?”. Consider that as prices were moving higher, the resistance levels were what was needed in terms of identifying a potential exhaustion level. This is why it’s so important to understand what pulling a Fibonacci Retracement and Extension from either an uptrend or from a downtrend will yield. Case in point: For resistance, the move lower was moved since the Fibo projected levels would be potential resistance. Now I’m using the recent rally to project potential support.
The initial support level of the move higher has been reached as prices are not testing the 23.8% Retracement level. A pierce suggests that there is sufficient momentum to test support but not necessarily establish resistance below it. Consider that the 80.11 is just 11 ticks above the 80.00 major psychological level and this too will offer considerable support. In fact the current low on the day is 80.02.
The reversals on the short-term USD/CHF, USD/JPY, and AUD/USD which I have been tracking are all making moves based on the dollar’s sharp move lower today. The 240-minute USD/JPY and AUD/USD are particularly interesting since these are larger corrections that are following the more dominant psychology seen on their respective daily charts.
I’ll be posting a video update of those three pairs tonight, before the Asian session at my blog.