Dollar pullback alert sounded! The K line showed two bearish signals, and the US dollar index faced a standstill as soon as it broke the 100-week EMA

The Zhitong Finance App notes that the US dollar has continued to rise since mid-September and may continue to rise, but the warning signs appearing on the chart indicate that the risk of a pullback is rising.

Until recently, technical indicators seemed to be on the side of the dollar bulls. The US Dollar Index — a widely tracked basket of six currencies traded against the US dollar — broke through an important milestone on the chart last week.

This milestone is the 100-week moving average. Technical analysts use moving averages to better understand trends by removing price extremes. A break above this line is seen as a bullish sign. As far as the US dollar is concerned, it seems to indicate a new phase of the round of gains that began earlier this month — this round of gains has accumulated 2.8% from bottom to peak.

However, the US dollar index ran out of momentum on Friday after breaking through its 100-week moving average. The day's trend formed a so-called bearish swallowing pattern. As the name suggests, this pattern often indicates that prices will fall.

One of the tools technical analysts use to understand the power balance between buyers and sellers is a K-line chart, which presents key prices in an easy-to-understand form — the opening, highest, lowest, and closing prices for a given period.

The bearish swallowing pattern is a K-line pattern composed of a falling K-line. The range between the opening price and closing price is larger than the range of the previous rising K line. It is seen as a sign that positive momentum is waning.

On Monday, this interpretation was strengthened by another K-line pattern called bearish harami (bearish harami); in this pattern, the range between the opening price and closing price was included by the previous day's opening price and closing price. It is also seen as a sign that the market is losing momentum and entering a phase of indecision.

The next few trading days could be critical for the US dollar. If the index falls below the 100-week moving average around 100.7, market participants will see the 100 mark as the key to determining whether it is likely to fall to a low of 98.5980 on September 9.

However, if Friday's bearish pattern ends up being just a “minor episode,” the market's focus will shift to the 101.63 to 101.80 area. According to London Stock Exchange Group (LSEG) data, the June and July highs are in this range.

Technical analysts believe that early highs are significant; they can often slow or accelerate a round of gains. Breaking through these highs could push the dollar towards 102.87 — the midpoint of the fall range from January 2025 to January 2026 — and then possibly hit 104.59.