From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
The US Dollar remains at crucial inflection points versus both emerging and developed currencies.
In last week’s note, we pointed out the critical 19 level in the WisdomTree Emerging Currency Fund $CEW, along with the numerous tests of support in our custom USD vs. BRICS Currency Index.
Not only is the USD looking increasingly vulnerable against emerging and developed currencies, but we’re now starting to see some of the major Dollar crosses break down or resolve lower.
In many cases, these moves are confirming long-term reversal patterns with USD/CAD. For example, the Dollar just broke to fresh multi-year lows relative to the Canadian Dollar.
We reviewed the chart in this column a few weeks back, highlighting the possibility of an impending double top.
Well, here’s what it looks like now:
In this week’s post, we’ll take a look at another major USD cross on the verge of completing a significant trend reversal against the Dollar: the British Pound.
Here’s a chart of the GBP/USD:
The Pound Sterling has been stuck below former multi-decade resistance since the Brexit vote in 2016. To describe this former support level near 1.42 as key, would be an understatement.
Add the fact that it’s also converging with a 13-year downtrend line, and we’re looking at a HUGE level!
If the GBP/USD cross is back above former support turned resistance, the long-term downtrend line, and its 2018 highs near 1.4350, we need to aggressively buy Pounds with a longer-term target of 1.70.
The more the US dollar continues to weaken against other major currencies, the more likely the rest will follow.
We have to imagine the US Dollar Index $DXY is completing its double top in this environment, breaking below 88.50.
If the Dollar is catching lower, commodities and risk-assets are probably doing well. At the very least, it’s not a headwind for higher prices.
Whether we’re buying Pounds or Canadian Dollars, it’s good to know what’s happening in the currency market as it impacts all the major asset classes.
