ACT Markets > Blog > Forex > Technical Analysis > DXY BREAKS OUT OF THE DAILY DEMAND – Strong Enough to Start a Bull Market?

DXY BREAKS OUT OF THE DAILY DEMAND – Strong Enough to Start a Bull Market?

May 18, 2023 Financial Market, Technical Analysis

Key Take-Aways

  • 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.

USDCHF Daily Chart showing the RSI Divergence

There are, however, three schools of thought:

  1. 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
  2. The second school of thought prefers that the market breaks the 0.9000 resistance zone for USDCHF to declare its uptrend move.
  3. 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:

  1. Do you prefer a break-out entry? or
  2. A pull-back entry?

For the pull-back school of thought, there are a few places they could place look for an entry

  1. At the demand zone 0.8860
  2. 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.

Fundamentally,

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:
Adewuyi Ayodeji James known as A.A.James is a forex analyst and a passionate educator. He has almost a decade of experience in the global financial market and has taught hundreds of students across different countries and growing. He once served as a Business Development Manager, and the Head of Client Relations for Suavally Market Global, a leading forex institute in Africa. During his time at Suavally, He also doubles as the education Champion for one of her Partner brokers M4Market. A.A. James is a Dealer/Educator at ACT Brokers, the only Forex Brokerage firm with a dealing desk in Nigeria. He also teaches at RUBY FX Solutions. A.A. James is the Face and Host of the popular MORNING MARKET; a daily market analysis that holds every morning before the London session opens, with the growing attendance of clients from different brokers from across the globe. He is a Well sought-after retail FOREX Educator, both independent and Trainer for forex Broker(s). A public speaker, Mentor, and Life coach. A Recording Artist, Music, and Art Director with over a decade of active experience.

Related articles