As shown on the daily chart of USDINDEX posted below, the pair is in extended bullish divergence after losing 81.97 levels, the first assumed target of the last drop (84.91/81.97) has not been achieved yet , so there's a room for more downside losses, but the pair is likely to retest (81.97 / 82.47) levels before attacking 81.20 levels ahead of 80.15 levels..
The second chart is for USDCHF pair, as shown on it below, the pair is also in extended bullish divergence exactly as USDINDEX, the broken support is 0.9357 which is resistance now ..
Anyway,the fist assumed target of the last move (0.9357/0.9750) levels almost achieved, but there's a room for more downside move , resistance levels are ( 0.9357, 0.9404, 0.9445, 0.9477), the pair is likely to be rejected from any of those levels before attacking (0.9250/0.9100 levels).
The extended bullish divergence , usually comes in trending market, it happen when buyers find support - put a bottom - but because of the lack of the bullish momentum , the pair usually fails to rise and sellers expose support , in other words, the pair will extend its weakness below the broken support to get the needed momentum before reversing strongly to upside ...
If you read my previous posts, remember when EURUSD was in extended bullish divergence at 1.3058 , the pair extended its weakness towards 1.2755 before flying strongly from 1.2755 towards 1.3200 levels, here we have the same case with USDINDEX and USDCHF..
The extended bullish divergence is bearish in short term and bullish in long term , because of the lack of bullish momentum , they should extend lower before reversing to the upside ...
This view is valid as long as both pairs trade below 83.57 and 0.9533 levels.
note that sometimes - in few cases - in strong trending market , the pair continues to extend its weakness below the broken support 500 -1000 pips before the next rise....so the smart question is ?!! where is next bottom !!!
The last case is the EURUSD pair, we have an opposite case of USDCHF and USDINDEX, the EURUSD is in extended bearish divergence after breaking above 1.3255 levels, the first assumed target of the last move 1.2755/1.3255 has not been achieved yet , it's around 1.3390, the second one around 1.3570, the third one around 1.3755 , the fourth one around 1.4000 levels....so Where will be the next top ?!!
The extended bearish divergence is bullish in short term and bearish in long term , because of the lack of bearish momentum , buyers dominate the market , and the pair is likely to extend its gain above 1.3255 levels before the next fall..
Note that support is at 1.3255 ahead of 1.3175, the pair is likely to test this area before attacking 1.3400 levels...keep in mind stability below 1.3175 levels on a daily closing basis would delay / invalid this view !!!
The common point between extended bearish divergence and extended bullish divergence is that the market sometimes continues to extend its gains/weakness .............500/1000 pips before the next rise /fall....
I use USD/CHF and USD/INDEX because there's a strong correlation between EURUSD and both pairs...