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Chart Advisor: Dollar Breaking 52-Week High

Chart Advisor: Dollar Breaking 52-Week High

Posted October 18, 2023
Investopedia

By Manuel Tellechea, CMT

1/ Follow the Spread

2/ New Two Months High 

3/ Relative Strength

4/ Bullish Divergence

Investopedia is partnering with CMT Association on this newsletter.  The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services.

1/Follow the Spread

The U.S. dollar has been on the rise since July and has reached levels not seen in roughly a year. After an initial rejection at a critical level, price found support at former resistance around 105 and re-emerged upwards.

At the bottom of the chart, you can observe the spread between U.S. and German 10-year yields (BUND).

A positive spread means that the percentage yearly return of a bond over another is higher. When this spread widens, it indicates that the U.S. is becoming a more attractive destination for investors compared to Europe.

In recent years, the direction of this spread has served as a reliable indicator for understanding the potential movement of the U.S. dollar.

Since April, the spread has been steadily increasing and is approaching a resistance level that has been holding since 2020. This marks the fourth attempt by buyers to breach this level. A fundamental principle in technical analysis is that the more times a level is tested, the higher the likelihood it will eventually be broken.

2/ New Two Months High 

Bitcoin experienced a sudden surge of up to 10%, briefly reaching $30,000 in just a matter of minutes, driven by rumors of the first spot Bitcoin ETF approval. However, it quickly retracted and returned to its previous level. During this brief volatility, a staggering 65 million in BTC was liquidated within minutes.

Nevertheless, the price is now showing signs of recovery, with nearly a 5% gain, and it is currently hovering just below a resistance level. The question remains: will this momentum be robust enough to reignite the upward trend?

3/ Relative Strength

Another indication of weakness in the internal market can be observed in the small-cap index, represented by the IWC ETF. It has had a challenging year, consistently lagging behind in every minor market rally. In fact, IWC has reached its lowest level in roughly three years.

The sector continues to gain momentum and relative strength, two key leadership characteristics.

4/ Bullish Divergence

Another leading sector is Technology, boasting a remarkable 40% gain in 2023. The ETF tracking this sector is XLK, which has accumulated a 37% gain year-to-date.

Despite trading sideways since June of this year, this sector still exhibits a growing momentum.

This is further supported by a bullish divergence between the price and the relative strength ratio. While the price has been making consecutive lows, the ratio has consistently recorded higher lows.

If this momentum gain persists, the sector will take on a leadership role.

Originally posted 17th October 2023

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