The dollar index measures the dollar's performance against the world's other major currencies. According to Bloomberg the index is weighted as follows: 57.6% euro, 13.6% Japanese yen, 11.9% British pound, 9.1% Canadian dollar, 4.2% swedish krona and 3.6% Swiss franc.

The chart below shows how the index has formed a massive head and shoulder formation over the last fifteen years. The neckline of this formation is formed by connecting the low of 80.05 in April 1995 and the low of 80.39 in December 2004.

We have recently seen this index touch 81.29 on the 25th of April and we are presently at 81.65. A definitive break of the 80 level would constitute the break of the neckline and would put into play the 40 level. The way we derive this objective is by measuring the distance from the top of the head at around 120 to the neckline at 80 and subtracting from the break out level which is 80.

We would expect the move from 80 to 40 to take a few years to evolve as the formation has taken fifteen years to form. As you can see by the chart it could take a couple of years or more for the index to reach 40 if we see a break of the neckline.

Learn more about technical analysis
Martin Pring's Introduction to Technical Analysis: A CD-ROM Seminar and Workbook

By Mario Innecco
ForSoundMoney.com

At ForSoundMoney we stand for a hard currency. We believe in a monetary system based on commodity money and a free-market banking system where central banks are non-existant.

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