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U.S. Dollar Index Enters Long-Term Resistance Area

After breaking above a small range in August, U.S. dollar (USD) Index futures have been surging. That surge has taken the price into a long-term resistance area between 88 and 90—an area that reversed major uptrends in 2009 and 2010. There is also a high in 2005, near 92, which extends the resistance range even higher.

Figure 1. US Dollar Index Futures - 10 Year Weekly Chart

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The uptrend could persist, but in light of the strong resistance in this area, temper expectations. Buy on pullbacks instead of buying on new highs. While the latter approach could work, this is a price area which tends to cause false upside breakouts; respect the market's tendency.

Figure 2 shows one possible pullback entry, near 86.50. This entry is near the upward sloping trendline, and above the consolidation which formed in October (should provide support). If the price drops below 85 the uptrend is in trouble. If the entry area holds, and the price continues higher, the target is 90 based the rising price channel and long-term resistance.

Figure 2. March US Dollar Index Futures - Daily Chart


Jumping into a short position just because the index has entered a resistance zone isn't advised. The trend is currently up, and that's to be respected. Only if the price makes a lower swing low followed by a lower swing high (or vice versa) is going against the current uptrend a consideration. Based on the historical precedent, if the price does reverse course there will still be ample profit potential even after waiting for reversal confirmation.

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