Today, we are analyzing chart patterns in the Dollar Index (USDX) together with the COT Report in order to finds that may tell us where the dollar is going.
Breakout in weekly chart
In my post Reflection on FX Majors with COT Report, we already know that USDX has recently made a breakout of the falling wedge pattern in the weekly chart (See chart below).
We also see that USDX is trading between a recent Resistance @ 78.82 and Support @ 76.22 and is currently near the resistance level.
USDX Weekly Showing Bullish Reversal Breakout of Falling Wedge
Daily Chart – 1. Bullish Flag Pattern
From the daily chart below that there is a Bullish Flag Pattern, which was formed shortly after the breakout from the falling wedge pattern on the weekly chart.
In addition, the flag was ‘resting’ on the 50 day Moving Average, forming a Higher Low, thereby giving some bullishness to the picture of USDX.
USDX Bullish Flag
On the other hand, some might consider another outlook for the USDX in the manner below.
Daily Chart – 2. Bearish Broadening Top Pattern
USDX Bearish Broadening Top Pattern
As from the chart above, a different way of joining the resistance line gives us a broadening top chart pattern, which might indicate a somewhat bearish view.
The recent shooting star, which happens to be near the previous monthly resistance, adds to the bearish-ness on the current movement. (See chart below)
USDX Bearish Shooting Star Candlestick
There are two pictures now, a Bullish Flag Pattern and a Bearish Broadening Top Pattern.
So how can we resolve this 2 conflicting views? The COT Report comes into the picture.
COT Report Analysis
With reference to the above charts, the bottom panel of the chart maps the Total Open Interest and the Commercial Sentiments for USDX.
We can see that:
- Commercial Sentiments is unwinding their shorts on USDX, which may indicate slightly bullish sentiments.
- The total Open Interest is slightly lower than previous week, which also hints that there is still high interest for USDX, thus, boosting the bullish signal again!
