Where is the ground? (2011-04-28 DXY analysis)

You might have probably well understood the increased volatility of the stock market. Yesterday HSI surged around 1% in the morning but then dropped and closed at -0.48%. This is due to the broadening trading range of the index as mentioned on Tuesday.

Though neither the upper nor the lower boundary was reached, we could see that there were pretty equivalent amount of investors of both sides. That's why the market kept on fluctuating until there is some breaking news converging the views of investors.

Recently people have been talking about the Dollar. Let's see.

Above is the daily chart of US Dollar Index (.DXY). It has been sliding downwards for three months. Few days ago the dollar even broke the previous low in late 2009 which is treated as a strong support to the index, due to the expectation that the Fed would keep the interest rate at almost zero, as well as further Quantitative Easing might be implemented.

Along with the weakening of US Dollar, many countries are put in a disadvantageous position as their trades with US will be altered. Exports to US would drop significantly while imports from US would boost. Officials in emerging countries, especially those relying heavily on exports, are somehow expected to come out and speak as an attempt to stop the Dollar from infinitely weakening.

On the chart, however, I still could not find the ground for the index. A possible support in near future would be at 73, but it is not that strong. An extremely strong support will be at the low in early 2008 which is at around 71. In this case, the dollar would have dropped almost 20% since the high in mid 2010.

Resistance, on the other hand, exists at many levels, provided by the red, purple and green trend-lines as well as the previous low in late 2009.

It looks like we could still short USD as there is still no obvious obstacle blocking the down trend.