Double Top in Greenback?

I don’t normally pay much attention to the U.S. dollar index because it is so thinly traded. It’s far bettter to take signals directly from the markets you trade, and not from markets professionals don’t trade, regardless if it’s a leading indicator or not. 

I can’t help but notice though the negative divergence between price and momentum as this index approaches the peak of the Nov Head & Shoulder top — see chart below. Every time a market attempts to make a new high there is the possibility of a double top. If the market stalls and gives us indications such as bearish candle stick behavior and divergence on the momentum indicators, then we need to monitor it more closely.

In this case we’ll have to monitor all the currencies a bit more closely because of the influence of the U.S. currency. I would not want an opinion to cloud my analysis either, as the U.S. Dollar could just as easily be pausing before a resumption of the rally which kicked off in mid-December. That said divergence on the lower time frame charts such as 240-minute and even 60-minute become more important.

It has been good to see the carry pairs swing higher also. Experienenced traders know that the best markets to trade are those that move both up and down.

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About Jay Norris

Jay Norris is Director of Education at Trading University, has over 30 years of trading experience, and is the best selling author of "Mastering The Currency Market", McGraw-Hill, 2009, and "Mastering Trade Selection and Management", McGraw-Hill, 2011. He has also been published multiple times in Technical Analysis of Stocks & Commodities magazine.

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