What this moving average roadmap says about DXY trend

Overlay of 4 moving averages on weekly time frame

This roadmap is an overlay of multiple exponential moving averages on the weekly time frame. The moving averages are:

  • 13-week ema (red)
  • 26-week ema (blue)
  • 52-week ema (brown)
  • 104-week ema (black)

They are meant to show quarter, 6 months, 12 months and 24 month trend. Price reacting to and bouncing off these lines indicate their effectiveness. If they are ineffective, there would be no reaction.

At the moment, DXY down trend is pretty strong so the red 13-week ema is in control. Only if the down trend weakens i.e. DXY retraces higher, will we see the other 3 lines come into play.

There are many technical analysis studies so this is not the only roadmap. However I like this one because of the way trend and levels jump out visually.

 

Describing DXY’s current price action

A few things to observe from this chart:

  1. We understand why DXY retracement paused at this level. Whatever fundamental narrative used to explain why USD recovery has faltered, the fact is DXY has run into the red 13-week ema which is now a technical resistance.
  2. Some Dollar bears may decide to short here at this line if they feel that strength of the current downtrend is still as strong as before. (See period April to September when DXY was falling steeply below red 13-week ema). Similarly early Dollar bulls might just take some here instead of hanging around in case a strong gush of selling were to appear.
  3. If red is overcome, expect reaction to higher lines starting with the blue. If all 4 moving averages come into play, potential resistance zone is between 95 – 96+ (see orange shaded box on chart right; moving average values may change over time).
  4. 13 and 26-week ema already made a dead cross. This indicates that short term 3-month to 6-month trend is bearish.
  5. With the trend traders should be looking at shorting to go with the flow.
  6. Going long is the contrarian, counter-trend trade and will have to overcome many resistance levels from different studies.
DXY weekly chart overlaid with 4-line roadmap

DXY weekly chart overlaid with 4-line roadmap | Chart: Tradingview.com

 

Introduction to simple moving average and exponential moving average.

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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