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The US Dollar Index had one of its strongest weeks in a long time. It jumped from under 75 to 77.2 points – the highest level in two months. Where will it go next? Here are the lines to watch out for and an analysis of the next moves. Perhaps it is time for a break before the next push higher.

The the current levels, the index isn’t far from a 7 month high, as seen on the graph.

Technical Levels

Another small push and it will pass 77.4 points, above the peak of mid March, reaching the highest level since mid February. Real resistance is at 77.5 points, which caps the aforementioned peak and served as support early in the year.US Dollar Index September 2011

If the 77.50 barrier is broken, higher resistance is far, at 78.32. This line worked as resistance at the beginning of 2011 and also in October 2010.

Even stronger resistance is found at 78.87. This is a clear line separating ranges. It was a peak in February and a bottom several times during January and December.

Just 79.50 is a minor line on the way up before the round number of 80. Above that round number, 80.83 is serious resistance before the double top of 81.44.

But after the sharp breakout, the US dollar index might stop to take a rest. Support is found in June’s peak of 76.72, a peak broken towards the end of the past week.

Further support is found at 76.01, which capped the index twice in the summer. The next lines are 75.38 and 74.67.

How will it behave?

The greenback was pushed higher by various reasons. The main ones are the dramatic intervention by the Swiss to weaken the franc. The 10% move had a strong impact on the index. The second push higher was due to the worsening situation in Europe: Greece is on the verge of bankruptcy and Trichet significantly  lowered his forecasts.

The Swiss front is expected to be quiet now. Will the Japanese follow the Swiss and intervene as well?

This is an open question, but given their past behavior, the chances for a move like the Swiss did is low. Perhaps a small intervention will push USD/JPY higher, but this will likely be short lived.

Regarding Europe, an acknowledgement of Greece’s problems can  accelerate, but this is unknown at the moment. The G-7 meeting could produce some stabilizing statements.

In the US, tension mounts towards the FOMC meeting which ends on September 21st. No QE3 is likely, but some easing steps will definitely be discussed.

So all in all, if we don’t hear extremely dramatic news from Greece, consolidation and stability is more likely at these levels. Perhaps the dollar will edge higher, but another big break of multiple levels doesn’t seem likely.

In the following week, with the FOMC decision in the US, another move higher can happen.

What do you think?

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