The US Dollar broke out of a long low and tight base over the summer. The move took it screaming higher, all the way to 86.87 on the Dollar Index. A 6.5% move in about 6 weeks. When it ended there was a sigh of relief as it pulled back. But after a couple of weeks of retrenching, it is showing signs it is ready for the next leg higher.
The chart above shows how extended the Dollar Index got on the initial leg up. The RSI, a momentum measure, registered overbought for nearly 2 months. A sign of very strong buying. But the pullback has allowed the pressure to bleed off. The pullback in the RSI stopped at the mid line, in bullish territory and has now reversed higher. Momentum is picking up. At the same time the MACD shows the pullback leveling out and improving.
The most important aspect though is the price of the Index itself. The price action looks like a bull flag, an indicator of digestion before another move up. It also held at 85 on the pullback, a level of prior importance. And Wednesday pushed back higher. It is now near the top of the consolidation zone at 86.15 from the prior leg up. Continuation higher, and then a new high would trigger a target of 90.40 or even 92.20.
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