FX Bottom Line: If the S&P 500 Index manages to form a bottoming pattern against last Thursday’s bullish key reversal low of 818.91, the DXY is likely to undergo a retracement phase that would highlight support levels at 84.45, 83.82 and 82.32. Keep an eye on this relationship this week.
The possibility is raised that the S&P 500 Index is attempting to stabilize against last Thursday’s (bullish key reversal) low of 818.91.
With a potential triple bottom pattern forming near 845.27 for stocks, a close above resistance at 940.73 would produce a bullish trend reversal.
This would then highlight the reaction highs near 1007.46 – with a close above this key level confirming the establishment of a triple bottom pattern.
The S&P 500 Index will now have to remain above Thursday’s low at 818.91 on a daily closing basis in order to sustain the bottoming potential that is present.
The DXY has a substantial negative intermarket correlation with stocks right now, with a potential double top forming near 88.50 while stocks bottomed out last week.
Should stocks manage to form a base and reverse higher, intermarket relationships suggest that the DXY will pierce the 86.15 support level and begin a retracement.
This outcome would highlight secondary support levels at 84.45 and 83.75 for the DXY.
Note that 38.2% Fibonacci retracement of the September-November rally in the DXY is located at 83.82, with 50% retracement at 82.32 and 61.8% retracement at 80.82.
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