MNI MARKET ANALYSIS: DXY Candle Pattern Reinforces Bullish Conditions

Executive Summary:

• Looking at the USD Index monthly Japanese candlestick chart, April appears to be a Standard line - a continuation pattern and in this instance, a bullish signal.
• The pattern has occurred at the top of a broad multi-year range that started January 2017.
• It suggests resistance at the 103.00/104.00 area remains vulnerable.

The USD is in a clear uptrend and this was reinforced in April. The bull theme is clearly highlighted in the USD Index (DXY) chart. A number of important technical factors are evident on the monthly frequency:

• Looking at Japanese candlestick patterns, April appears to be a Standard line. This is a pattern where the body - area between the open and close - is significantly large. Furthermore, the open is closer to the low of the session and the close, is at or near, the high of the candle. A standard line is a continuation pattern and in this instance, a bullish signal. It suggests that bullish sentiment remains firm.
• The pattern has occurred at the top of a broad multi-year range that started January 2017. In the chart below, the range clearly highlights areas of key support in the 89.00 region, and resistance around 1.0300 - the range parameters.
• The top of the range was tested in the Dec ‘16/Jan ‘17 period and in Mar ‘20. The latest test (last month), highlights a very different candle structure to the previous two challenges on range resistance. The first two, are characterised by volatile activity which, typically, following a trend, is a reversal signal. The Index did indeed reverse and eventually traded down to the base of the range. Last month’s bullish candle paints a different picture. A standard line highlights a strong uptrend and suggests that bullish sentiment remains firm. Key resistance at 103.00/104.00 - for now - appears vulnerable.
• Note however that the range remains intact. A failure at the 103.00/104.00 area would instead warn of a more significant medium-term bearish reversal.