DXY BREAKS OUT OF THE DAILY DEMAND – Strong Enough to Start a Bull Market?
- Dollar Index Breaks the 102.55 area.
- A Clear divergence formation on the USDCHF Daily Chart.
- USDCHF also breaks the immediate previous high @ 0.8954
- Price dancing around the 0.9000 resistance level
Technical Analysis of USD/CHF
The DXY being the Dollar Index recently broke the recent Lower high, around 102.55 indicating a potential reversal to the upside. Knowing that the market rarely turns or reverses without giving a notification, it gave us a regular bullish divergence as heads up on the Daily chart. The RSI divergence created on USDCHF on 4th May 2023 was responsible for the break of the previous high @ 0.8954 but nevertheless, there is another high that is yet to be broken @ 0.9000. This being a psychological level, if the USDCHF finds that level difficult to break, we may experience a downward move again to the demand area @ 0.8860.
There are, however, three schools of thought:
- The first school of thought sees 0.8954 as the high that once broken, they are officially in an uptrend, therefore waiting for a pull-back to the demand zone @ 0.8860
- The second school of thought prefers that the market breaks the 0.9000 resistance zone for USDCHF to declare its uptrend move.
- The last school of thought is already buying as the trendline was broken with a bullish engulfing candle. They, therefore, need no further confirmation.
Either of the two are correct as the entry technique is what makes the difference:
- Do you prefer a break-out entry? or
- A pull-back entry?
For the pull-back school of thought, there are a few places they could place look for an entry
- At the demand zone 0.8860
- At 0.8900 golden Fib level 61.8
A few levels technical traders often look at are 38.2 for the shallow retracement, 50 and 61.8 level is considered as the golden zone, 71, 78.6 and 88.6 are regarded as the premium/discounted levels for deep retracement.
We understand that the price of assets seeks the equilibrium with the value of that asset, as such do you think the price of DXY is the reflection of its true value?
If the price pulls back into the demand Zone for a Bullish take-off, that could mean some 500pip+ move into a trading account. That could be yours.
Author: A.A. James
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