The US Dollar Index was flat for most of 2014 until it started to rise in July. That continued through the rest of the year and into early 2015. The remainder of 2015 and all of 2016 then saw the dollar move sideways in a channel, as you can plainly see in the chart below — another example of why you should follow price action, not predict it.
If ever there was a crash scenario for the US Dollar Index, USD's recent behavior indicates it could be now. Since the December peak, the dollar is off nearly 12%; not quite a crash, but a big move for something that historically has pretty low volatility. And the Index has passed through some major milestones.
So what's next if the breakdown continues? Lets take a look.
Three weeks ago USD broke below its 2-year channel, which began at the start of 2015. And because It had dropped below and then reversed before, traders weren't overly alarmed. Then it stopped at its 200-week SMA, followed by a Spinning Top candle the following week right at the 200-week SMA. This is a candle of indecision, which is often thought of as a reversal candle. To confirm a reversal, though, the next candle (closing Friday) would need to close higher.
It will not. With one trading day left, the candle looks to be making a new 2-year low, which tells us to look for possible support areas as it continues lower. By Friday morning, USD was through that 200-week SMA and at a 50% retracement of the major move higher, a level that could attract buyers. Below the 61.8% retracement at 88.50 would be the next level to watch.
There was a minor pause at 84.85, near the 78.6% retracement. From there the price history record is deeper as there was a lot of activity between 79 and 84.85 in the 2 years from 2012 to 2014. There is also a bullish Shark harmonic that has built (green triangles). It would look for a Potential Reversal Zone (PRZ) at about 81.50, or through that at the PRZ II at 76.25.
91.40, 88.50, 84.85, 81.50, 79, 76.25 – 6 price levels to watch. Any of these prices or all of them or none of them may play an important role. But each one will have some meaning for a subset of traders and therefore are worth watching.