The Dollar Index Is Waking Up

The US Dollar Index (DX_F, UUP) has been asleep for many of the crises that have been happening over the last six months moving in a narrow 3 point range between 78.60 and 81.45. But this week it seems to be awakening from its long slumber and going batty. Quite illustratively Batty. As in following a Bearish Bat Harmonic Pattern. As laid out on the chart below, the Dollar Index has a Potential Reversal Zone (PRZ) between 83.21 and 83.47 for the Bat Harmonic Pattern.

The move that has taken it this far, breaking above the previous zone, has also coincided with a pullback in the stock markets, so pay attention. Another 2 points higher could make the stock market a bit dicey in the short run and deliver that 3-5% pullback in the S&P 500 that everyone is looking for. The Bat also coincides with the view that the equity pullback will be short lived and then a rebound will occur. The initial target for the reversal lower from the Bat takes it back to 80.70 and then 78.60. That would be good for Equities. This Pattern fits the scenario that nearly every trader and analyst is looking for. Kind of freaky isn’t it? What could derail it? If you look at the daily chart below the extended neckline of the Inverse Head and Shoulders pattern that triggered last May is back in the picture as resistance. A move through that level gives the Bat target more confidence.

Oh, one more thing. I said earlier that the Bat covers the scenario that nearly every trader and analyst is looking for, a short pullback. If you look to the upper right of that chart the pink ball gives an alternative view. In fact this pattern could also be a Bearish Crab if it extends beyond the Bat target. The Crab has a PRZ at 87.50, in that ball. And that blue line, is the extended support line going back to September 2011. If the Dollar Index gets that high then the deep correction that the rest of the pack is looking for could be seen.

Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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