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US Dollar Index – Seasonal and mean reversion analysis backs our call for a USD correction

1. USD Index – 30yr Average Seasonal Pattern

2. USD Index Daily Chart – Mean Reversion candidate

One of the first things I learnt about technical analysis is that prices are either moving away from the Mean (average price over n periods) or travelling towards the mean (at which point prices consolidate in and around the mean). When price moves too far away from the mean, then we can view that as a statistical anomaly and at some point, the price will travel back close to or at the Mean. The daily USD Index chart below shows this price dynamic. The red solid line in the chart depicts the medium-term Mean of the USD Index and price is below it indicating a downtrend. September of last year price moved 5% away from the Mean and started a period of consolidation (basin) and eventually changed direction and attempted to travel close to the Mean and at the same time alleviating the ‘oversold’ condition in the USD Index. Fast forward to today and we have the same conditions in place i.e. the price is roughly 5% away from its Mean. Given the previous charts, we have posted in our year-end post we can add this as a ‘further evidence’ that a USD Index correction is on the cards. As always we have to be patient and see clear signs of a reversal in price of the USD Index. Yesterday showed some promise as we can see from the charts below.

3. USD Index posted a bullish candlestick pattern yesterday BUT follow-through required! Watch the T-Lines in the majors!