Taming the Raging US Dollar Bull

US Dollar Index (ICE) Monthly

usd (3/7) – The US Dollar is all the rage these days and it should be.  The US Dollar Index in enjoying its 10th consecutive monthly advance (in over 30 years of trading, there had never been more than 6 consecutive monthly advances).  The 12 month rate of change of 21.86% is the highest since February 1985 (incidentally the month of the all-time high) and monthly RSI (as of February’s close) is above 79 for only the second time in history (the other time was February 1985).

A scan of news headlines reveals extreme sentiment towards the USD as evidenced by journalists’ word choice.  Specifically, ‘USD surges and soars’ are common.  A few examples; Fortune, Business Insider, Reuters, AP, Barron’s, Fox Business (chapter 4 of Sentiment in the Forex Market expands on the logic behind using the media for contrary signals and includes 35 examples of ‘usd and surge’ as reversal signals).

The above information must be viewed in context with respect to price.  Here at SB, we rely heavily on slope analysis (also known as Andrew’s pitchfork or median line analysis).  The method is pure in that price is the only input and robust in that we can implement the analysis on any time frame.  Studying support/resistance on a slope will also reveal price levels that can’t be identified from horizontal support/resistance.  In that vein, US Dollar Index slope resistance resides at about 98.50 and 99.25 this month (the latter level is also the August 2003 high).  This slope is considered active or operable since a good deal of spikes and consolidation (see circles) have taken place on the slope.  At times, the slope has identified support and resistance with precision (see arrows).  In summary, this raging USD bull may yet be tamed.