US Dollar Index Selloff Accelerates Near Pivotal Level

Cory Mitchell, CMT

The USD dollar is continuing its dramatic decline today. The USD has lost more than 0.5% against many pairs today, including the EUR, GBP, JPY, and NZD. It is still down, but not quite at much, against the CAD, AUD, and CHF (flat).

Looking at a balanced index of the USD versus the other majors we can see the USD is testing multiple lows that occurred in mid-2018, early 2019, and has already dropped below major swing lows from 2020.

The chart above is a balanced index, so it has slightly different levels than the US dollar index which is often quoted and traded on the futures exchanges. That dollar index is shown below.

USD index testing muti-year support area July 27 2020

The latter chart has more weighting on the EUR, which has been very strong. Therefore, that index shows the USD dropping even more aggressively. 

EURUSD and the Futures of the USD

The EURUSD is in a declining trendline region that extends back to 2008. 
The price has edged above the trendline, but is still in the vicinity. I wouldn't call the trendline broken just yet. 

EURUSD testing multi-year descending trendline July 27 2020

The price made a higher swing low before rallying to the test to the trendline, but that also happened back in 2012. That rally ultimately failed.

I am a trader. I like to trade patterns I know, and not just make random predictions. 

Right now, I am watching for topping patterns in this key area. 

In prior EURUSD and GBPUSD articles, the long trade was on tap, and now I prefer to sit on the sidelines and see how this price structure holds up. If it keeps rallying, I get back in on the longside on pullbacks. If we start to deteriorate to the downside, then a short bias kicks in.

That said, keep in mind that this is a long-term chart. Know the time frame you trade on and stick to your own analysis based on that. I do take weekly chart trades, but most trades come on the daily timeframe or lower.

The USD dollar index is in a similar position. It is at a key level. A continuation breaks the pattern, but a reversal higher at these key levels could lead to a big bounce. Trading in either direction near a key level isn't wishy-washy...it is trading what the market provides. 

Gold and USD

One of the big winners of the USD sell-off has been gold. 

I have inverted the USD scale on the right to show that gold has risen as the USD has fallen. That correlation is not always in effect.

inverted USD dollar performance versus gold performance July 27 2020

I don't typically trade gold directly, but gold stocks have taken up a chunk of my watch/trade lists for quite a while now. I publish a stock market outlook and watch list each week on TradeThatSwing.

On another note, when you take a trade, have an idea of how long that trade could last. The video explains why and how.

Cory Mitchell, CMT

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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