Mapping the Market: The dollar could deepen its losses
By Robert Fullem
NEW YORK, Nov 3 (Reuters) - The dollar has had a strong year, rising more than 7.5% from its lows to highs due to the Iran war, inflation and rising bond yields. However, it has been running out of steam since mid-October and appears headed for further losses, technical analysis indicates.
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Click here for a detailed technical analysis chart.
Technical analysts use charts of past price action to map out future moves. To chart the US currency, analysts use the dollar index, or DXY, which tracks the greenback against a group of six major currencies.
When a market appears headed for a wholesale change of direction or even just a minor pullback before resuming its previous trend, chart watchers often turn to widely used gauges of momentum and volatility to assess the possibility of such a move.
One tool for determining momentum is called the Relative Strength Index, or RSI. It measures the speed of recent price changes on a scale of 0 to 100. A reading above 50 generally means buyers are in control, and below 50 suggests sellers have the upper hand.
In the dollar index, RSI has been falling from elevated levels since the start of October and appears headed for a slide below 50.
A volatility measure called Average True Range (ATR), adds to the picture of a downward shift in the dollar. ATR measures how much an asset typically moves in a day. A rising ATR alongside falling prices suggests sellers are gaining conviction. The dollar’s ATR has been rising in recent sessions as the dollar extended its fall.
With downward momentum in place, traders then look for support levels, which are prices that could act as a floor. Market watchers commonly use previous highs and lows as well as moving averages to identify support. A moving average smooths out price swings by averaging them over a set period, and slipping beneath it often suggests strength is fading.
The latest leg of losses came as the dollar index fell below its 21-day moving average late last week. A further slide would target the 55- and 100-day moving averages, which are both around the 100.7 level. Beyond there, comes the 200-day moving average near 99.7 and then the August 20 low, which is located at 98.56, according to data supplied by LSEG.
Another tool analysts use for identifying support is called a channel. This consists of two parallel lines that mark the upper and lower price boundaries in a moving market. The dollar’s trend channel has been rising this year and a fall beneath its lower barrier would be considered bearish. For the dollar index, this would occur with a drop below 99.36.
To negate the bearish view, the index would have to rise back above the October high at 102.95.
What the chart shows:
The dollar index is starting to give back some of this year’s gains
Further slide would target 100.7, 99.7 and then 98.56
A rise above 102.95 would quash the bearish view
(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice or trading recommendations. )