The Commercial traders as of this week's Legacy Commitments of Traders report in the Dollar Index are 10 to 1 NET short. When the commercials build a position like that the clock is ticking for the "pin to get pulled".

There was a heavy looking topping pattern on the 30 minute chart that developed above a "gap" up that started the week. See left hand side chart below. For those who were long a position going into the week, beneath that trendline became a good location to lock in some profits from a "Trade Management" perspective. For those who went long at the beginning of this week with a position or swing trade, that trendline also became a good location to limit losses from a "Risk Management" perspective.

The dominant pattern on the Dollar Index is still the bullish "Cup with a Handle" on the weekly chart. See right hand side below. If the current consolidation area near the breakout point for the past two months fails to continue to offer strong support, this pattern becomes very shaky.

More importantly if the "handle" gets taken out to the downside, it could be "bombs away" especially if the commercial traders are still selling or holding steady, since the rest of the traders who need to unload a large long position will be in desperate need for new traders to step in and buy from them.

There is a potential bearish rising wedge forming on the daily chart which I highlighted with blue trendlines. The proper breakdown in a wedge is past the 2/3rds point or final third of the pattern. Volume should be diminishing inside the wedge, and expanding on a breakdown. Keep in mind failed patterns are strong signals. A breakout to new highs and short covering from the commercials would be a very bullish development in my opinion.

Click here for a larger chart.

My most recent post on the Dollar Index can be found here: http://scottpluschau.blogspot.com/2012/07/complex-head-and-shoulders-on-dollar.html

I do my best to tweet out my posts promptly on twitter/ScottPluschau
Consulting? ScottPluschau@gmail.com

-- Posted Monday, 30 July 2012 | Digg This Article