What can we infer from the monthly and weekly closures in the greenback?
Technical Picture of the U.S. Currency
Let’s start today’s analysis with the long-term picture of the greenback.
Looking at the monthly chart, we see that the U.S. currency approached the red resistance zone based on Oct. and Nov. 2023 highs in the previous month. Additionally, slightly below this area the bulls collided with the upper border of the blue triangle, which together with the mentioned red zone encouraged the sellers to protect their allies.
As a result, the greenback reversed and declined in May, creating on the monthly chart a pro-bearish formation – dark cloud cover, which (at least at the first sight) doesn’t bode well for the bulls – especially when we take into account the fact that this candlestick formation appeared in the strong resistance area, reinforcing its importance.
How did this price action affect the medium-term picture of the U.S. dollar?
Let’s examine the chart below to find out.
From this perspective, we see that the above-mentioned decline resulted in a drop below the green support line based on the previous lows, which additionally speaks against the buyers – especially when add to this fact the sell signals generated by the indicators that continue to support the bears.
But are the bulls finished yet?
Despite all the grim technical factors, we should keep in mind that the nearest support (the 50-week moving average) is quite close to current levels, which could motivate the buyers to act in the coming week – especially when we factor in the orange consolidation.
Why?
Because although the greenback moved lower in the previous month, the lower line of the formation withstood the selling pressure (at least at the moment of writing these words), which could translate into a rebound in the following days.
How high could the U.S. dollar go if we see such price action?
In my opinion, the first target for the buyers will likely be the previously broken green line, which serves as the nearest resistance at the moment. Therefore, if we see a comeback above, it (in other words, an invalidation of the earlier breakdown), it would be a positive development, which could translate into further improvement and (at least) a test of the upper line of the orange consolidation (at around 105.38).
What could happen if the mentioned green line lures the bears?
In this case, if the bulls do not manage to push the greenback above this resistance, we’ll see a verification of the earlier breakdown, which would likely translate into further deterioration and a re-test of the lower line of the orange consolidation or a test of the 50-week moving average or even a drop to the Apr. lows (around 103.64-103.68).
Nevertheless, it’s worth keeping in mind that a potential drop under the lower line of the consolidation, could trigger a bigger move, which could take the greenback even to 102.56, where the size of the downward move would correspond to the height of the formation.
Which scenario has a greater chance of being implemented during the upcoming sessions?
Before we find the answer to this question, let’s recall the quote from the Quick Gold Alert posted on May 23:
(…) the greenback also finished the day above the upper line of the orange consolidation, which opened the way to (at least) 105,10, where the size of the upward move would correspond to the height of this formation.
Did the U.S. dollar soar earlier today?
Not really.
(…) the greenback turned back to the south, which suggest that we’ll likely see a verification of yesterday’s breakout above all the mentioned earlier resistances: the short-term red declining resistance line, the upper line of the orange consolidation and the 50-day moving average (…)
(…) if the buyers fail to maintain the greenback above these important levels and the bears close the day below them, we’ll likely see a comeback to (at least) the lower line of the orange consolidation (104.28).
From the short-term perspective, we see that the situation developed in tune with the above assumptions, and the U.S. currency moved lower in the following days, reaching the above-mentioned downside target.
As you see, the lower line of the orange consolidation encouraged the buyers to fight, which resulted in a comeback to the previous peaks and even a small breakout above them at the end of the previous month.
Despite this improvement, the bulls failed to maintain gained levels as the gap (105.07-105.10) from May 14 lured the sellers and thwarted the attack on the 50% Fibonacci retracement (based on the entire May downward move).
As a result, the greenback reversed and declined not only under the previous highs, but also below the 50-day moving average and the upper line of the orange consolidation, creating on the chart a pro-bearish candlestick formation – the dark cloud cover.
The combination of these negative technical factors accelerated further declines and resulted in a red gap on Monday. Although the bulls tried to close it, they failed, which triggered a sharp drop that took the U.S. currency not only below the lower border of the orange consolidation but also under the 50% Fibonacci retracement (based on the entire March-May upward move) and the 200-day moving average.
When we zoom out a bit on the daily chart, we’ll also notice that yesterday’s move took the greenback under the mentioned earlier green support line based on the previous lows.
Although all the above doesn’t look good (from the bulls’ point of view), we should keep in mind that thanks to Monday’s slide, the U.S. dollar reached the green support zone, which was strong enough to stop the sellers in the previous month.
Additionally, yesterday’s move resulted in a test of the 38.2% Fibonacci retracement (based on the entire 2024 upward move) and the upper line of the short-term red declining trend channel (marked with dashed lines).
What does it mean for the greenback?
If the buyers manage to maintain this very important line and trigger a rebound from here, we could see a verification of the earlier breakout above the upper line of the channel, which would be a bullish sign – especially if the bulls protect the May 16 low of 103.97.
In this case, we could receive not only the mentioned verification of the earlier breakout above the upper line of the channel but also a potential post double bottom rally in the following days.
Connecting the dots, keeping an eye on the above-mentioned area is very important at the moment, because the outcome of the battle fought here will be crucial for the direction of the next move – not only for the greenback, but also for gold.
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See you tomorrow.
Anna Radomska