Dollar index has soared to a previous swing high, crushing the Ruble through Oil price deflation.
Dollar Index has completed a multi-year retracement to previous swing highs. This multi-year high has implications across the board for many oil economies from Syria, Iran, Russia and Iraq which are dependent on oil sales to hold their economy’s strength.
At these levels, the dollar index has pushed commodities into a deflationary cycle that could push some economies into a further recession.
Price Action on the Dollar index
The consolidation zone from 87.50 to 88.50 will show us where the market is headed. There is a bit of exhaustion in the Dollar index at these levels and there will probably be some stimulus to continue direction after the FOMC meeting Wednesday.
Downside targets for support are 85.50 to 86.25 where we had previous consolidation and resistance at 92.50 to 93.50.
Although there has been a lot of upside movement in the dollar this move has not shown any sort of capitulation. Price at these levels previously exhibited price failure and the inability to keep direction as sellers moved in.
The dollar price action is effecting many commodities and the economies of many countries whose source of income is Oil.
Look for continued volatility as there is political pressure on both Russia, Syria and Iran and this might add strength to the dollar if there is any saber rattling.
45% of Russia’s economy is supported by oil and this move in oil and the deterioration of the value of the ruble could lead to intervention in the market by Russia’s central bank. This added volatility will make for wild movement and extreme caution should be used in trading in this environment.
If you are not used to trading in a volatile market, it is best to sit on the side than to expose your self to this much risk. Market makers are also getting beaten up in this environment and you would be best to sit on the side lines than to participate. Trading is high risk.
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