In revisiting a recent blog post, we wanted to follow up on our previous analysis of the US Dollar which just this week produced another significant technical development. At Dorsey Wright Money Management our systematic based models focus on relative strength rankings for trading signals. However, in this post we will focus on the technical development of DXY on the traditional point and figure chart. Remember, by doing so we are just trying to focus on the supply/demand of the market to get an idea of where new pockets of relative strength may begin to show up once we run our matrix models.
For many who don’t actively follow the currency markets, you may be asking why is this the technical structure of the US Dollar important? For one, the strength of the US Dollar effects each and everyone of us on a daily basis whether we realize it or not. When it comes down to buying groceries or taking vacations, exchange rates ultimately determine the cost of goods for families. Finally, major developments in macro asset classes such as the currency market can have an effect on asset allocations when it comes to heavy re-balancing periods such as quarter end.
As we mentioned above, at Dorsey Wright we view the markets as a simple equation of supply and demand. Markets ebb and flow over the course of the year, with some markets producing strong trends while others maintain very range bound behavior. We of course want to find the strongest performing assets classes which are exhibiting solid trends and focus on asset allocation within those pockets of strength. The ability for investors to remain flexible through different products is synonymous with this type of strategy.
US Dollar Index (DX/Y): Point & Figure
The below Point & Figure chart shows the DX/Y achieved a triple top spread break out earlier this week with the a move above 85.00. The market had re-tested this level on two previous occasions but in those circumstances supply eventually overwhelmed demand. However, the third attempt for the greenback bulls was a success and now has the US Dollar trading at its highest level in years. The triple top pattern break out has a potential measured move target of 97.50.
Conclusion:
The above paper was a quick follow up to our previous report on the technical structure of the US Dollar. From the current technical set up, it appears the US Dollar is poised for another leg higher. Time will tell whether the 97.50 target is reached or not.
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