In our 2021 forecast piece where we wrote that, "The U.S. Dollar Index (DXY) has been in a downtrend since making a peak in March. Prices are pointed down. The Point and Figure chart suggests 80 is a potential price target. Long before we reach 80 we are likely to see a recovery rally. ... we can see a bullish divergence from the 12-day price momentum study. Notice the higher lows from June to August to December. The pace of the decline has slowed. This bullish divergence can be foreshadowing a recovery rally."
Let's check on the charts again this morning.
In this updated daily Japanese candlestick chart of DXY, below, we can see that Wednesday's candle pattern looks like a spinning top and Thursday's rally (white real body) is the confirmation we like to see to give us more confidence that we are witnessing a reversal.
I learned way back in the 1990s when I worked with Steve Nison that you first want to see a trend followed by a reversal pattern like a doji or a hammer or a spinning top. Last, you need to see confirmation and with a bottom reversal it would mean seeing a bullish pattern in the next session. We can see that in the chart, below, along with a bullish divergence from the 12-day price momentum study and an improving slow stochastic indicator.