US Dollar Index Tests Breakout ahead of Big Economic Week

The US Dollar Index ($USD) is in a long-term uptrend, but the index pulled back this week to test the most recent breakout. A strong breakout should hold, while a weak breakout would fold. This is am important test for the greenback as we head into a big economic reporting week. The chart below shows the index basing from October to February and then breaking out with a strong move above 81.50 in late February. Broken resistance turned into support as the index fell back to the 81.50 area in early May. This fall back formed a falling flag/channel and the index then broke resistance with a surge above 83. With this week's pullback, another test is in store as the index retraces 50% of the May surge.

Click this image for a live chart

The index pulled back this week because the Dollar fell against the Euro and the Yen, which are the two biggest components of the index. The indicator window shows the Euro Index ($XEU) moving above 130 and the Yen Index ($XJY) moving above 99.5 for the first time since early May. The Euro Index is bouncing off support from the late April low. The Yen Index is getting an oversold bounce after a sharp decline. Next week could be pivotal for the Dollar because the employment data will influence the future of quantitative easing, which in turn will affect the Dollar. Strong employment numbers would suggest a tapering in quantitative easing and be bullish for the Dollar. Weak numbers would open the door for sustained quantitative easing and be bearish for the Dollar. The current trend favors a strong employment report. The second chart shows weekly jobless claims in a clear downtrend and the four week average below 350,000. 

Click this image for a live chart

Have a great weekend!
Arthur Hill CMT
Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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