Good day Forex peeps! Here’s a technical update on the US Dollar index or USDX. For those who do not know, the USDX is an index that measures the value of the greenback against a basket of currencies. This basket is composed of the following currencies: euro (57.6% weight), British pound (11.9% weight), Canadian dollar (9.1% weight), Swiss franc (3.6% weight), Swedish krona (4.2% weight), and Japanese yen (13.6% weight). Simply put, the valuation of the USDX and the dollar itself increases when its rival currencies losses value. The opposite, however, occurs when the euro’s price, for example jumps.
So based on the given chart, it looks like the index and the USD is about to weaken again. As you can see, the index has been forming a rising wedge pattern after it broke down from a head and shoulders formation. While a rising wedge pattern appears to be bullish at first, it is in fact bearish since it only reflects a rally in prices due perhaps to short covers that are done by the short sellers or by profit taking. A breakdown from the inverted wedge, therefore, is likely. When it does, the index would almost certainly revisit its recent low at 76.144. A breach of this level could even send it much lower towards the 74.00 area. Notice also that there is a potential hidden bearish divergence (prices make lower lows while the stochastics indicator register higher highs) in the works. But since the stochastics are still far from the overbought territory, the index may still a bit before it finally falls down.