Dollar Index may test 84.50 by Q4CY13: Angel

Angel's special technical report on Dollar Index ($ Index)

In price chart (in the pdf) of "DX - $ Index (Dollar Index)", the currency was largely witnessing a downtrend in the last couple of weeks. However, last week the DX saw a bounce back and it breached last week’s high and managed to close above it.

Price formation
We observed that the "DX" is trading in the upward channel (ABCD) since the start of 2011 and is currently on the lower band (CD) of the channel. As per the Up-ward channel, the lower band (CD) is considered as a Potential Reversal Zone where we spotted a candlestick pattern Known as "Bullish Engulfing Pattern" which is the sign of optimism. Last week prices opened at level 80.63 (near the preceding week’s closing level of 80.62) and closed at level 82.41 higher by 2.22 percent. It made a low of level 80.50 which was also the low level of the preceding week. The "Double bottom formation" is also seen on the chart.

Analysis of Oscillator
On the oscillator front, the RSI (Relative Strength Index) is hovering around 51 levels. We have seen that from 2011 till date, the RSI is in a rising mode.

In year 2011, the RSI touched levels of 20 (point "X) and after that it went up further to test 70. Again in the third-quarter of 2012, it declined and touched levels around 30 (point "Y") and if we draw a trend line from point "X" to point "Y" and extend it, we found out a point "Z", which would be the next support level, where RSI can take support. Interestingly, last week RSI has fallen and touched levels close to Point "Z" and again we saw a sharp bounce back from point "Z".

If we relate the upward channel movement with the RSI movement, we find that movement of price action and the oscillator is in tandem, which is showing positive divergence on the charts.

Key Levels (3-4 Months)
Resistance for DX can be seen at level 84.50 and after that at level 87.00. Support could be seen at level 80.50.

Outlook: Technically, the price performance along with optimism seen in the Oscillators, the trend in the DX is expected to be Up and the currency in our opinion is expected to touch levels of 84.00 to 84.50 by the fourth-quarter of the calendar year.

Impact of Appreciation in the "DX"

1. Deprecation in Indian Rupee (INR) is negative for the Indian economy at large.
2. Weakness in International Gold prices in dollar terms. In Rupee terms, gold prices will get upside support due to Rupee depreciation.
3. Weakness in the Euro.
4. Bond buying program is expected to be halted in the coming months, thereby leading to strength in the Dollar Index.

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