Dollar Index May Decline to Five-Month Low: Technical Analysis

By Ron Harui

May 25 (Bloomberg) -- The Dollar Index may extend its decline to a five-month low after it fell below so-called support at 81.457 and 80.161, according to Standard Chartered Bank, citing trading patterns.

Support at 81.457 is the 250-day moving average, based on Standard Chartered’s chart. The 80.161 level is the 50 percent retracement of the rally from the March 2008 low of 70.698 to the March 2009 high of 89.624, based on a series of numbers known as the Fibonacci sequence, Standard Chartered said.

“The break down below the 250-day moving average is bearish and leaves the focus on further potential losses,” Callum Henderson, global head of currency strategy in Singapore at Standard Chartered, wrote in a research note today. “The breach of the 50 percent retracement of the rally from the 70.698 low at 80.161 leaves the 61.8 percent retracement open next, coming in at 77.828.”

The Dollar Index traded at 80.206 as of 9:01 a.m. in London from 79.958 in New York on May 22 when it touched 79.805, the lowest level since Dec. 29. The index, used by the ICE to track the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, has weakened 5.2 percent so far this month.

Next support below the 77.828 level is the Dec. 18 low of 77.688, which is a “potential watershed zone” for the Dollar Index, according to Henderson. Support is where buy orders may be clustered.

Daily momentum indicators such as the 14-day relative strength index and the moving average convergence/divergence chart show a sell signal for the Dollar Index, Henderson wrote.

The RSI is a technical gauge that compares the magnitude of gains and losses. MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance or below support indicates a currency may move to the next level.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net