Wednesday, December 14, 2011

Daily Dollar

The U.S. Dollar index daily chart marks the second session that prices remain above the upper bollinger band. I have highlighted previous points at which the second day out of the bollinger band acts as a short-term top. Bollinger bands expand with the upper band and lower band turning opposite of one another in uptrending markets. Prices follow suit and will hug the upper bollinger band to better define the existing uptrend. Today's action may warrant a slight pullback or consolidation before prices resume higher. The indicators above are revealing that this short-term uptrend will likely give way in the next couple of weeks. The MACD is forming a negative divergence of this most recent price swing and the Stochastic indicator has now reached overbought levels. I would expect the stochastics to remain overbought, produce its own negative divergence, then drop below 80 as the MACD produces a bearish cross. Until then, investors should closely watch the next swing high of the dollar index as the 82 level seems like a likely target.

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