Market News & Analysis

Top Story

Weekly and Monthly Bearish Engulfing Candles Appear On DXY - But Just How Grizzly Are They?

The USD index (DXY) presented traders with a bearish engulfing candle on both the weekly and monthly chart by Friday’s close. So, will this bearish pattern live up to its grizzly name in the weeks ahead?


As of Friday, it was DXY’s most bearish close since January 2018. Yet key support around 97 previously highlighted has continued to hold and bulls managed a minor rally from this level yesterday.  We doubt it will be easy for bears to break 97 easily and, even if they do, there’s also the 20-week eMA and lower trendline to content with. But, for today we’ll see just how bearish a bearish engulfing candle is. Using Reuters data from 1986, here’s how bearish engulfing candles have played out in the following months and weeks.


  • The first thing to note here is the small sample size; being below 30, it’s not considered to be large enough to be statistically significant (so we can be less confidence in the results).
  • Still, it’s interesting to note that the month following an engulfing candle has been bearish over 50% of the time, with T+5 months being the most bearish. If this were to be repeated, then March could be a bear-fest for USD. And worth noting that over the past 15 years, DXY has produced negative returns on average.
  • Beyond these points, it’s hard to build a compelling bearish case from this chart as median and average returns diverge and T+2, T+3 and T+6 produced bullish candles over 50% of the time.


  • Sample size: 87
  • Well, that doesn’t look particularly bearish to me. In fact, the only negative return is T+4 average, whereas T+4 median is ‘typically’ flat
  • Average and median returns become increasingly bullish between T+1 to T+3, and all produce bullish candles over 50% of the time.
  • T+3 produces bullish candles nearly 60% of the time
  • Average returns are negative between T+4 and T+6, whilst median (typically) returns are positive over T+1 to T+6


Whilst we’re here, we may as well include the results for the daily chart too. Yet the results appear similar to the weekly data; bearish engulfing candles on the daily are typically bullish over 50% of the time between T+1 to T+6.

From the data above, it doesn’t appear that bearish engulfing candles on DXY have been favourable to bears on the weekly and daily charts. Given the key level of support nearby and the fact that most of my Twitter feed is now bearish on the USD, the contrarian within me wonders if there may be further upside on the dollar over the coming week/s.


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.