Chart analysis shows bearish situation for US dollar

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Last Updated, Nov 13, 2023, 7:59 AM

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The U.S. market is faltering as scandals hit companies like Facebook. It’s also struggling because larger companies realize the true impact of President Donald Trump’s tariff and trade war with China.

Previously, as the U.S. markets went from strength-to-strength, the U.S. dollar index continued to weaken. This was contrary to the normal situation where a strong U.S. market was usually accompanied by a strong dollar.

A weaker U.S. market usually sees a weaker currency, so when this is added to the previous contrary behavior it suggests the greenback could fall further. The dollar index has dropped below the long-term support level near 93 and then below the critical support level near 91.

Temporary support has developed near 88.5. It is a temporary level because there is no previous record of support near this level. This remains a very bearish situation.

Trend analysis is applied using the Guppy Multiple Moving Average indicator. The GMMA analysis shows a very strong downtrend remains in place.

The November 2017 rally toward 95 for the dollar index was near to the value of the lower edge of the long-term GMMA. The dollar retreated from that strong resistance feature and plunged below support.

There are three GMMA trend analysis features.

The first feature is that the long-term GMMA shows no signs of compression. The lower edge of the long-term GMMA has moved below 93 and into the trading band. This confirms the downtrend continues to develop strength. There is no indication of downtrend weakness.

The second feature is the way the price has clustered along the lower edge of the short-term GMMA. The small rallies within the consolidation area have used the lower edge of the short-term GMMA as a resistance feature. This further confirms downtrend strength.

The third feature is that the separation between the long-term GMMA and the short-term GMMA has remained steady since November 2017. This is a third feature that confirms downtrend strength.

A change in the downtrend is signaled when the long-term GMMA begins to compress.

The weekly chart shows there is no strong support or consolidation areas between long-term historical support near 93 and 85. The sustained move below 91 could fall to 85. That’s a historical support level, and it’s the most significant feature of the dollar index chart.

Traders will short the dollar after any fall below the consolidation area near 88.5. We use the ANTSYSS trade method to extract good returns from the potentially fast fall when the consolidation support level is broken.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

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