The US dollar index (USDX) looks to be in the process of rolling over from its previous major (long-term) uptrend to a downtrend. However, as of the end of November there is no clear sell signal or confirmation of a new downtrend. The month saw the USDX extend its major uptrend to a high of 96.94 before finishing the month at 95.99, with the upside target nestled in between these marks at 96.09. This is the 50% retracement level of the previous major downtrend from 102.99 (March 2020) through the low of 89.20 (January 2021). It should be noted monthly stochastics established a bearish crossover above the overbought level of 80% at the end of the month, a signal the major trend is set to turn down. This means the USDX needs to see a reversal pattern of some type to confirm the move to a new downtrend.
Theoretical Position: Selling the US dollar based on the bearish crossover by monthly stochastic is a riskier trade than buying the euro due to the USDX weekly chart does not show a bearish reversal at the end of last week. Unless we employ the Horseshoe Proximity which tells us last week’s close of 96.09, up 0.06 for the week, was close enough to a bearish spike reversal to count. If shorting the dollar, sell stops could be placed above the November high (last week’s high) of 96.94.
