Study: what happens next when the USD makes its first rally in more than 1 year


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.

  1. The USD Index is far above its 50 daily moving average when it is “overbought”.
  2. 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

Conclusion

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.

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