Bearish flagsss (2011-08-02 DXY analysis)

The House just approved raising US debt limit by at least $2.1 trillion. Default date therefore was delayed, and corporate investors made good use of this news to narrow the plunge of US markets yesterday.

However, I do not think this has a long-lasting effect. In fact, after HSI reached 22,800 yesterday and showed a false breakout, we can expect the index to drop in remaining of this week. Around 22,150 is the next support.

So today let's see how the increased debt limit could possibly affect the US Dollar.



Above is the daily chart of US Dollar Index (DXY). The index broke down the red flag two weeks before, and the overall trend has turned to even more bearish.

Indeed, the red flag could be treated as a bearish flag when we look at the big picture. At first, US Dollar slid along the orange down-trend channel. Then a bearish flag appeared and told us that the trend would continue.

After looking at the big picture, we can try to investigate some smaller waves. The purple flag is possibly another bearish flag, following the bearish movement in July 2011.

The index beautifully moved along this purple channel. If it breaks down, then another big downward wave should show up. Therefore, Euros, Pounds, Yen so on and so forth are anticipated to strengthen.

On other hand, if DXY breaks out instead, the lower red line will be the resistant. The level is currently at around 15, but it will be increasing.

Personally I carry a more bearish view on DXY. While USD is depreciating, HKD is following as well. We will be having a hard time to convert the currencies for traveling or trips...