The U.S. Dollar index has been rallying since mid-April 2018. This is the USD’s first real rally since the end of 2016, almost 1.5 years.
Most traders like to use momentum indicators such as RSI to determine a market’s “momentum”. We like to use “the market’s % DISTANCE from a key moving average” to gauge momentum.
We’re going to use the USD Index’s 50 daily moving average in this study.
- The USD Index is far above its 50 daily moving average when it is “overbought”.
- The USD Index is far below its 50 daily moving average when it is “oversold”.
The USD Index is 4.01% above its 50 dma as of May 29, 2018. This is the first time it’s been above the 50dma by more than 4% since November 23, 2016 (1.5 years ago).
Here’s what happens next (historically) to the USD Index when:
The USD Index is more than 4% above its 50 daily moving average, AND..
This is the first time the USD has been more than 4% above its 50 dma in at least 1 year (252 trading days.
Here are the USD Index’s forward returns.
Click here to download the data in Excel
The USD Index has a bullish bias on a 1 week forward and 1 month forward basis. This means that the USD Index will probably go a little higher in the short term.