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Is DXY pointing at the weakness of the markets?

Today we will use this analysis to look at DXY/ the dollar index and then quickly skim over main indexes such as S&P 500 and Dow Jones.

DXY - The dollar index

DXY, also known as the dollar index is an indicator portraying the strength of the US dollar. A rule of a thumb is that if this index is rising, the other markets are falling and vice versa. The stronger this index is, the weaker the other markets are. If we look at the weekly chart we can see that after the Covid-19 outbreak this index was constantly falling. Now we can see that it is starting to form some kind of triangle formation.

Dollar index - DXY - weekly chart DXY weekly chart Technical analysis, Source: Author

If we zoom in on a daily chart, we can see that we are getting really close to the trend line. Upward breakout of this trendline would go hand in hand with a new High, which can potentially mean trend reversal. This option is very close from happening, which would mean that the falling of DXY index would stop after several months.

Dollar index - DXY - 1D chart DXY 1D chart Technical analysis, Source: Author

Dow Jones

On the other hand, if we look at Dow Jones, after the Covid price slump, we saw an incredible rise, which was forming a rising wedge formation, that we fell out of. Even though the price fell out of the wedge, DJI was able to create a new High, which however is not that significant.

Yet, this chart looks more and more bearish, and it is highly possible that we can be expecting a downward movement. And if we account for DXY strengthening, we can be going into quite a dangerous territory for this major index.

Dow Jones weekly chart Dow Jones Technical analysis, Source: Author

S&P 500

If we have a look at another very popular index, S&P 500, we can see that the situation looks fairly similar to DJI. However, unlike in the case of DJI, S&P 500 has not fall out of wedge yet. Even in the wedge formation we have seen some sharp sudden price movements (usually to the downside), but all of them were fairly quickly pushed back up. However, even in this case we can be at the end of the cycle, which could lead to a rather severe downward movement.

default S&P 500 Technical analysis, Source: Author

Jakub is a crypto trader and founder of Trader 2.0 project, which helps hundreds of traders from central Europe to understand cryptocurrency trading and its challenges. Jakub not o...

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