The US dollar index has been consolidating for several weeks and is poised for a breakout. Here's what we have observed in this market:

1.) On the weekly continuous chart, the US dollar index has traded either side of 85 and a half cents for the last seventeen weeks. Most of the time the market traded both above and below 85.50 in the same week! Since mid-June, the furthest upside deviation from this price that has occurred was 155 points while the furthest downside deviation that has occurred was 133 points.

2.) On the monthly continuous chart, the US dollar index has a historical record of dropping below 81.50 or rebounding to 89.50 within two months of when it first drops to 85.50. In May of this year, the greenback declined to 85.50 but did not match the expected 400 point decline or 400 point rebound within the two month window. October is the fifth month since the US dollar index first touched 85.50 this year so a substantial move is overdue.

3.) On the quarterly continuous chart, the US dollar index formed an inside bar last quarter when it made a higher low and lower high than the previous quarter. The size of last quarter's range (high - low) was less than half of the size of the preceding quarter. Historically, a breakout above a previous quarter's high or below a previous quarter's low has been a good entry signal for trading with the long term trend. With the previous quarter being an inside bar, a good risk/reward set-up currently exists for breakout traders.

Disclaimer: There is risk of loss in all commodity trading. The data contained are believed to be reliable, but have not been independently verified by Pearce Financial. Accordingly, such data cannot be guaranteed as to reliability, accuracy, or completeness, and as such are subject to change without notice. Pearce Financial will not be responsible for any indirect, compensatory, or consequential damages, including loss of profits which may result from reliance on this data. Pearce Financial and/or its Principals and employees may or may not follow strictly any or all of the trading recommendations contained herein. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

© 2006 Pearce Financial, LLC
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