Thursday, June 30, 2011

Friday Dollar Analysis

Last week, I wrote the following about the dollar:

The A/D line shows a big move into the market in early May, but not much since. The CMF confirms the lack of movement into the market. The MACD shows increasing momentum, but note the current peak is lower than the last, indicating overall declining momentum right now. While the 10 and 20 day EMAs are still below the 50 day EMA, the shorter EMAs are now moving sideways rather than lower. They are also intertwined. The downward angle of descent on the 50 day EMA is also lower.

The chart is showing many signs of a reversal in progress.

The story in the currency markets for the last few weeks has been the Greek situation. Any story that was Greek resolution negative moved the euro lower and the dollar higher while the opposite was true. It is interesting to note the dollar is probably forming a bottom at an apex of the Greek vote story.

Let's start by looking at the really long view:

Last year, the market formed a head and shoulders pattern. In addition, since the top in mid-2010, prices have formed a down/up/down, lower high/lower low pattern. Currently, prices are forming a triangle pattern.

The above chart shows the consolidation in more detail. First, note the EMAs are moving closer together, which is usually a sign of market consolidation.

The jump in the A/D four weeks ago shows a big volume spike -- but nothing since then. The CMF indicates that money flowing into the market is evening out, while the MACD shows a slowing momentum.

I'm still thinking the dollar is forming some type of bottom at this time. The EU situation appears to be at a head, giving the market "closure."