USD US Dollar Index Daily Chart; Sideways Symmetrical Triangle; 2-Leg Bear Flag

The dollar runs the show over the last few months and especially in recent days. After ECB President Lagarde's presser a week and a half ago, the euro strengthens and the US dollar weakens. The central bankers are the market. The currencies hold about two-thirds of each other's baskets so the euro and dollar move inversely to each other. A weaker dollar sends commodities and commodity stocks higher pumping the broad stock market higher. A weaker dollar also helps US multi-national manufacturers and exporters creating positivity in the stock market.

The collapse in the dollar in recent days sends gold and silver to the stratosphere. Precious metals bulls are walking around with their chests puffed out displaying gold chains, platinum rings and silver crosses. The bump higher in commodities and the derivatives based on commodities, and miners, create stock market buoyancy.

Back in February and early March, the dollar was collapsing like now (more about this fractal below). The stock market peaked in late February and collapsed as news of the coronavirus hit. Investors became panicky and grabbed dollars with all their might launching the dollar higher and crushing stocks and gold. Then in late March, when the Federal Reserve promised they would print money forever to save the day and protect the wealthy class that owns large stock portfolios, the dollar begins the long descent, consistently creating a sustainable tailwind for the stock market to move higher.

The blue sideways symmetrical triangle's vertical side is about 3.5 points. Those extreme high and low points for that triangle are too wild to use for charting purposes. Focusing on the tighter triangle, a breakout above the top trend line at 100.50 would target 104 while a breakdown from, say, the bottom rail at 99.50, would target 96 on the downside. The dollar collapses out the bottom of the triangle so the 96 is in play and is achieved satisfying the triangle pattern.

The buck then goes into the red two-leg bear flag pattern. Come on now, Keystone, you're making this stuff up, all these strange names, come on now. No, seriously, these are all standard technical analysis trading patterns. The first leg lower is from 100.50 to 96 so that is a 4.50 difference. Price then moves sideways to sideways higher in the consolidation zone which is the flag area. Sometimes price will move towards an apex and create more of a triangle consolidation zone so some technicians will call it a 2-leg bear pennant but it is the same. Thus, at this stage, you know that a 2-leg bear flag has potential. When the dollar prints the high for the end of the consolidation zone at 97.50-98.00, quick math says the second leg of the bear flag should target 93.00-93.50 and bingo, the 2-leg bear flag is satisfied.

Well, now what? The green lines show positive divergence as the dollar prints the lower low. This creates the spike high on Friday and will provide an upside push for the dollar going forward on this daily basis. The RSI and stochastics are oversold agreeable to a bounce. Price has violated the lower standard deviation band so the middle band at 95.29, and dropping, and upper band at 97.94, are on the table. Price is extended below the moving average ribbon so a mean reversion higher is needed.

Interestingly, the ADX is signalling that the downside move in the dollar on this daily basis is a strong trend lower. The ADX is lofty, however, and may be peaking right now. The Aroon red line is overbot and green line oversold both would be viewed as bullish for the dollar going forward. The pink arrows show where the tight bands squeezed out a huge move lower for the dollar and verified the second leg of the 2-leg bear flag in progress.

On a daily basis, it looks good for the dollar to stabilize here and begin moving sideways to sideways higher. Stay on guard for the potential fractal (purple box) to repeat. The stock market is in a complacent pattern for the last month where a big correction lower is expected. This would occur if the dollar spiked wildly higher a la March. A jump in the dollar would crush gold, silver and other PM's, and commodities, and commodity stocks, which would send the broad stock market lower. There is a big difference, however. The dollar price behavior was not in positive divergence last March to create the bounce. The chart actually wanted the dollar to remains soggy for a few more days until the possie d would show in the indicators and a technical bounce was in order. Investors were in panic mode over the virus so a flight to dollars occurs and the greenback launches higher despite the absence of positive divergence. The RSI and stochasics were oversold back then agreeable to a bounce in the dollar but the RSI, MACD, histogram and stochastic lines were all still weak and bleak when the dollar popped in March.

Fittingly, the dollar comes back down four months later to place lower lows perhaps satisfying the negativity remaining in March that never had a chance to play out due to the coronavirus drama. The Federal Reserve stimulus creates further weakness in the dollar during the spring and summer months. The purple fractal may repeat and interestingly, say if negative news hit that would create a flight to dollars, it would be a double-whammy of upside glory for the dollar since the technicals would like to see a continuing positive divergence bounce in the daily time frame.

Looking at the dollar weekly chart, the oversold stochastics can team up with the daily chart positivity to bounce price for a day or few, however, the RSI, histogram and MACD line are all weak and bleak. Thus, a bottom in the dollar, on a weekly basis, may be a couple weeks or so away, say mid to late August (this month). As in late February and early March, the stock market may sell off while the dollar is actually flat or still leaking lower, this would jive with the dollar weekly chart, then the big drop in stocks would occur starting a couple weeks out or so when the dollar begins moving up on a weekly basis due to universal positive divergence on the weekly chart. The dollar monthly chart continues to stagger sideways through 89-103 for the last five years and seems content to continue along this path. Both the weekly and monthly charts have violated their lower bands and are agreeable to seeing buoyancy in each of their time frames going forward. The dollar is likely headed for a lot of sideways chop. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.