With the FOMC minutes due later this week, the annual central bank hooley at Jackson Hole and the continuation of major geo-political events in Ukraine, Gaza and Iraq, there is no better time to consider the US dollar.
Since early July, the US dollar has risen steadily on the dollar index chart, moving firmly higher from the 80.20 region through the strong resistance level at the 81.40 region and on to test the 81.80 price point. However, the last five weeks has seen a classic formation of price action with a rising market associated with narrowing price spreads which is suggestive of weakness, and at the very least a pause point, if not a reversal. To add to this, last week’s price action closed with a classic shooting star candle which was also an inside bar on the prior week (also a shooting star). Furthermore, the price action of the final week in July, whilst bullish, closed with a deep upper wick to the body of the candle. In summary, therefore, over the last three weeks, we have seen each candle close with a deep upper wick testing the 81.50-81.80 area and certainly suggesting weakness at best, with a possible reversal in the longer term now increasingly likely.
Moving to the daily chart this picture is clearly represented by the consolidation phase of the last two weeks with the candles within this price range characterised by wicks to both tops and bottoms. As outlined above the FOMC now dominates and this may indeed prove to the catalyst for any reversal for the dollar index at this level.