Blue lines- bearish RSI divergence
The Dollar index is at its new weekly highs. Technically trend remains bullish as price continues making higher highs and higher lows. Is this a good time to open new long positions? Definitely not. Bulls should be looking to protect their gains. Bulls should be looking to raise their protective stops. Why? Because there are increasing signs that the upward momentum is weakening. The bearish RSI divergence is the most important signal of weakening up trend. Technically there is no reversal signal. This indicator and very precise in timing reversals, however bears should not get carried away. Major rallies start at overbought conditions and many crashes at oversold conditions. Although the oscillator is overbought and has already provided us with a bearish divergence, this by no means alone justifies a reversal in the up trend of the Dollar index. This is only an indicator, only a warning. Better be cautious. That is why we do not think this is a good time to open new long positions. We believe the upside potential is limited and a reversal is imminent.
