From the Desk of Ian Culley @IanCulley
The US dollar has stopped going up!
In fact, it’s already registered a slightly lower high and lower low this past month.
But we can’t call a top in the US dollar yet. While it came close to officially triggering a top last week, the lack of follow-through kept us in our seats.
With fresh monthly candles in the books, let’s review longer-term charts and reiterate key levels for ol’ King Dollar.
Check out the monthly US Dollar index $DXY chart:
Notice the US dollar index (DXY) peaked at a critical Fibonacci extension level in September. Price continues to respect this level, proving a significant amount of supply exists at 114.
When we drill down to the daily charts, signs of a significant breakdown have failed to materialize… at least for now.
Here’s an updated chart from last month’s post:
Yes, the DXY undercut a critical extension level ~111.50. But we also witnessed a similar throwback in May, which was followed by another breakout to fresh highs.
Whether we’re seeing the early signs of a reversal or just another hard retest is unclear. Regardless, the dollar has been here before.
The daily RSI-14 also continues to hold within a bullish regime. To have any conviction in a dollar top, we’ll need to see momentum cool off significantly from here.
A bullish to bearish shift in momentum is a need, not a want. That means a 14-day RSI reading <35.
While we look to momentum for confirmation, price is always first and foremost:
The 107.50 level is our line in the sand, coinciding with the September pivot lows and the beginning of the final swing to fresh highs.
A break below those former lows will signify a change in character and a clear violation of the year-to-date trend line.
To be clear, that’s our level for now. We will adjust our level higher if and when the rally gets back on track. For instance, the next logical level of interest would be last week’s pivot low ~109.25.
As much as we would like to see the US dollar wrecking ball put to bed, we have yet to witness a definitive trend reversal.
Regardless, stocks rebound as breadth improves.
The dollar doesn’t have to roll over for stocks and risk assets to benefit. It just needs to stop going up, which it has.
And for the moment, it’s at a logical level to pause.
Thanks for reading.
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Allstarcharts Team