US Dollar Index forecast for the week of December 31, 2012, Technical Analysis

The US Dollar Index did very little for the week as volume simply work there in the market. However, looking at this chart we can see a potential head and shoulders which would be very bearish if we broke down through the neckline.

Ultimately, we think that the 79 level is the beginning of significant support and as a result we are not ready to start selling yet. In fact, we could just as easily go to the 81 handle is break down. With this being said, this is going to be a difficult market to trade simply because it is being driven upon headlines coming out of the DC debt talks. With that being the case, we are essentially waiting to see if the solution to the fiscal problems in the United States is acceptable. If it is, we should see this market collapse as we fall through the 79 handle and aim for 74. If it isn’t, we could see a spike in a run back to 82, and then 80.