From the beginning of the new 2020 US dollar index (USDX) cannot decide on the further direction of trade. As a result, we got an interesting technical picture.
From this point, the US dollar can either continue its growth in the long-term channel or start a downward trend.
At the end of December 2019, the dollar index broke through the lower boundary of the long-term growing channel (black channel) and it already seemed that a downward trend had begun. But the bulls were able to bring the index back into the channel by making a false break.
Now the dollar index has made a stop at the upper edge of the medium-term declining channel (blue channel) in the immediate vicinity of the reversal resistance level at 97.350. A breakdown of this resistance upward will lead to an exit from the declining channel and open the way up for the bulls, up to a new maximum of the index at 99.200.
A decline below 96.700 will allow the bears to develop an offensive and test the last support at 95.930 and beyond, a strong long-term support zone around the round 95.00.
Let’s take a look at the battle between bulls and bears on a larger timeframe. On the hourly chart of the USDX, we can very clearly see how the dollar index returned to the long-term channel and, having tested its lower border, continued to grow.
However, the bulls failed with four attempts to take the resistance level 97.150 (pink level) and the price went below the support 96.670 (light green support line). And here we see the classic bear trap (highlighted with circle # 1 on the chart).
The price returns above the support and breaks the resistance at 97.150 at the stops and forms a new high at 97.300.
And then the bears seize the initiative and remove the stops with the help bull trap bringing the price back below the 97.150 level (inside the purple circle # 2).
It is in the immediate vicinity of this level that the US dollar index is trading at the time of this writing.
The nearest price movements can tell us the direction of further movement of the US dollar in the near future.
All that remains is to closely monitor the resistance at 97.300, support at 96.700, and wait for a clear signal from your trading system.