US Dollar Index Forecast for the week of August 27, 2012, Technical Analysis

By FX Empire Analyst - Christopher Lewis
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The US Dollar Index had a negative week over the last five sessions as the consolidation continued. The 81 level the low looks to be rather supportive, and it is a point of inflection in this contract as far as we're concerned. It's fairly simple: if we are above the 81 handle, we want to either be long or flat. On the other hand, if we are below the 81 level we want to be either short or flat. 81 looks to be the key in this particular contract at this moment.

One of the biggest things that will drive where the US dollar is heading will be Federal Reserve monetary policy. It does appear that the Federal Reserve is willing to go into monetary easing sometime in the near future. Comments on Friday by Chairman Bernanke suggested that there was room for the Federal Reserve to move if the economic conditions warranted it. The currency market sold off the Dollar because of this, and as such we found the Friday session to be rather resistive.

For now though, we have to assume that the consolidation continues between 81 and 84. After all, a lot can happen over the weekend, and as such we need to simply play the charts as they stand. This chart does look like its somewhat bullish overall, but it's very possible that we could change direction if the Federal Reserve gets involved.

Below the 81 handle we see the 79 handle as massively supportive, and we think that a bounce would happen at that point in time if we get that low. As for the upside, it's fairly obvious that 84 is massively resistive. Any daily close outside of this range would have us going long above 84, in short below 81.

The fact that the summer is coming to an end and the large traders are coming back should have us finding some type of definitive direction in the fairly short term. Is because of this that we have to watch these levels very closely at this point, as the volume should pick up in just about 2 to 3 weeks.

US Dollar Index Forecast for the week of August 27, 2012, Technical Analysis

US Dollar Index Forecast for the week of August 27, 2012, Technical Analysis

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