The dollar has been cautiously proceeding with a recovery after losing all of its initial Iran-war gains by early May, and it is now drawing close to levels that would lead technical analysts to expect further gains.
A weekly chart of the dollar index, which gauges the greenback against six major currencies, shows an inverse head-and-shoulders pattern is forming. This pattern in the chart, according to technical analysis, is a formation that occurs after a spate of losses and is often followed by gains.
The pattern consists of three lows -- the deepest in the middle -- and two pull-back highs in between. A line connecting those pull-back highs, known as the "neckline," provides a key reference level to assess the completion of the pattern and to calculate potential gains afterward. That neckline would probably be above 100.60 when the dollar might be able to surpass it. A breakout above there would lead to expectations that the dollar could rise to the 105.50-106.00 area.
However, a fall in the dollar below the right shoulder in the 97.60/65 area would invalidate the pattern. A slide beyond the head, at 95.551 would suggest further losses are likely.
What the chart shows:
(Daily markets commentary from Reuters analysts on the signals financial charts are sending - and what they might mean.)
