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Top 5 Technical Developments for 2012 – Number 3 – US Dollar Index ($USD) Forms Large Head-and-Shoulders Reversal
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The US Dollar Index ($USD) was all over the place in 2012, but ended the year slightly lower than where it started. The index started the year around 80, surged to 84 and closed at 79.62 on Friday. From February to December, a large head-and-shoulders reversal formed with a rising neckline. Overall, I would use the 2012 lows to mark a support zone in the 78-79 area. A break below this zone would confirm the head-and-shoulders pattern and target further weakness towards the 74 area. Such a move would be bullish for stocks because the Dollar and S&P 500 move in opposite directions. Weakness in the Dollar would suggest a strong appetite for risk, which would bode well for risky assets, such as stocks. A close above the December high would call for a reassessment of this bearish head-and-shoulders pattern.
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What Is Technical Analysis?
Technical Analysis is the forecasting of future monetary rate trends based upon an examination of previous rate motions. Like weather forecasting, technical analysis does not lead to absolute predictions about the future. Instead, technical analysis could help traders anticipate just what is most likely to occur to stocks over time.
Technical analysis utilizes a broad selection of charts that show rate over time.
