Mapping the Market: Dollar gains still possible, but signs of trouble emerge

By Peter Stoneham Sept 29 - The dollar has been climbing since mid-September and could keep going, but signs of ​trouble on the chart suggest the risk of a pullback is growing.

Click ​here for a detailed technical analysis chart. Until recently, technical ‌indicators ​appeared to be moving in favor of dollar bulls. The dollar index – a widely followed basket of six currencies traded against the greenback – surpassed an important chart milestone last week.

That milestone was the 100-week moving average. Technical analysts use moving ‌averages to better understand a trend by stripping out price extremes. Crossing above them is seen as bullish, and in the dollar’s case it appeared to signal building momentum for a new phase of a rally that began earlier this month and had produced gains of 2.8% from trough to peak. However, no sooner had the dollar index surpassed ‌its 100-week moving average than it ran out of gas on Friday. That session produced what is known as a bearish engulfing pattern. As the name suggests, ‌it often foreshadows a slide in prices.

One tool technical analysts use to understand the balance between buyers and sellers is candlestick charts, which provide important prices -- the open, high, low and close for a given period – in an easily understandable format. A bearish engulfing formation is a candlestick pattern consisting of a down day of prices in which the range between the open and close is bigger than ⁠the previous ​up day’s. It is taken as a sign ⁠that positive momentum is faltering.

On Monday, this interpretation was enhanced by another candlestick pattern called a bearish harami, in which the range between the open and close is contained by the previous day’s open ⁠and close. It is also taken as a sign the market is losing momentum and entering a period of indecision. The upcoming trading sessions could be key for the dollar. If the ​index falls below the 100-week moving average near 100.7, market participants would view the 100 area as important to determine whether a slide toward the ⁠September 9 low of 98.5980 is possible.

However, if Friday’s bearish engulfing pattern proves to be a hiccup, focus will turn to the area around 101.63 to 101.80, which is where the June and July highs ⁠are ​located, according to LSEG data. Technical analysts view previous highs as significant and they can often slow or accelerate a rise. A rise above those peaks could lead the dollar toward 102.87, which is the midway point between the January 2025-to-January 2026 fall, and then possibly 104.59.

What the chart shows: (Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column ‌does not constitute investment advice or ‌trading recommendations. )

(Peter Stoneham is a Reuters market analyst. The views expressed are his own. ​Editing by Burton Frierson and David Gaffen)