Uptrend

The weekly US Dollar (UUP US Dollar Index Bullish Fund), in the chart below, has been in a choppy uptrend since September of 2011 within an ascending triangle. Based on 5 ema moving averages, we see an apparent breakout in June, 2012. Ascending triangles are bullish continuation patterns. Negative divergences can be seen on the ROC and MACD momentum indicators. However, the MACD is still above the zero line, so the dollar can advance. Further the stochastic and RSI have turned up, and neither is overbought.

The weekly Euro chart ($XEU) shows an accelerated decline since September 2011, in a bullish falling wedge. Positive divergences have formed on the ROC and MACD momentum indicators, but not so much on the RSI unless you go back to June of 2010. The 5 ema may find support on the lower trendline of the bullish falling wedge, which may limit further downside movement. However, the stochastic is pointing down and the MACD has not crossed the zero line yet. When the red directional indicator of the ADX indicator turns down, the green directional ADX indicator turns up and crosses, and the 5 ema turns up and takes out the top of the wedge; then we should see an explosive rally.

This analysis does not attempt to decipher the degree of USD/Euro correlation, but by comparing the two charts, you can see that there has been a strong but choppy inverse correlation for the last several years. Whether this relationship will continue into the immediate future is unknown to me.

In conclusion, we see the US Dollar in an uptrend since September of 2011, while the Euro has been in an accelerated decline in the same time period. The US Dollar appears to have broken out of an ascending triangle, which implies a continuation bullish advance. Meanwhile, the Euro is completing a bullish falling wedge, and could break-out when momentum turns upward. Positive divergences support this idea. However, the Euro decline may slide along the lower line of the bullish falling wedge, while the US Dollar becomes overbought. This scenario may play out; since the US Dollar RSI is not overbought, nor is the Euro RSI definitely oversold, and there is little concrete evidence to indicate that the US Dollar/Euro inverse relationship has ended. If this scenario plays out, as expected, we may see further weakness in US equities and European markets, until these currencies change direction. Before undertaking this study, I really thought that the US equities may be in an uptrend based on other TA evidence, but now I am thinking that more weakness may occur first. It can be really hard to read face of the market.