DOLLAR INDEX

As mentioned in the previous post, the dollar index has found support near 78 to 80 levels, and after making a low near 80 it has bounced back above 82, leading to a correction in global as well as Indian equity markets.

Now in near term there are many interesting observations that one can make on the dollar index chart. There is a positive divergence on the momentum as well as the stochastic indicator.  In the past such positive or negative divergence has had significant effect on the future movements of the index, so traders should watch how the current positive divergence plays out; it could lead the index to break above certain key resistance levels. Speaking of resistances there is the 38% retracement of the recent fall at 83.50, and then there is resistance at 83.60 and 83.95 provided by the 20 and 50 day moving averages respectively. Presence of these key resistances in a narrow band of 83.5 to 84 makes it a confluence of resistances, towards which the index might be attracted, leading to further correction the equity markets.

If the index is able to close above 84, then next resistance comes at 85.20 to 85.60. A rise to these levels will result in a correction in the equity markets.

The index has support in the 80 to78 zone which has been tested recently. A break of this support zone will be a good sign for the equity bulls as the index lack strong support below 78.