From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
US dollar strength is broadening as global currencies lose critical levels against it.
Last week, we outlined crucial support levels in the EUR/USD pair. Those levels have since given way, as sellers have taken control of this major forex cross.
Today, we’re going to highlight two other USD pairs that recently sliced through key levels, further paving a path of least resistance that favors the US dollar.
First up is the British pound, GBP/USD:
The pound has been carving out a distribution pattern for the past year.
Yesterday, it completed that pattern by violating a key level of former resistance turned support found at the 2021 lows around 1.32.
Momentum is also registering overbought conditions, confirming the recent breakdown.
As long as it’s below those former lows, we want to be short with a downside target near 1.25. A decisive close back above 1.32 invalidates this trade.
Next is the Indian Rupee, USD/INR:
For almost two years, buyers have been absorbing overhead supply around 75.81. They managed to twice push prices above that key level, but were unable to sustain a rally.
We think the third time could be a charm with new 22-month highs in the books as momentum improves in a bullish regime.
We want to be long USD/INR above 75.81 with an upside target of 86.70. If and when it slides lower back into its prior range, we have no business trading this cross from the long-side.
The breakout in the USD/INR and breakdown in the GBP/USD are great examples of burgeoning US dollar strength.
If these resolutions hold and sustained moves ensue, we could start to see other global currencies fall under the weight of expanding USD strength.
With geopolitical headlines dominating the news cycle amid growing fears, a prolonged dollar rally would signal a risk-off tone that could create stiff headwinds for global equities.
On the other hand, if these recent moves in the USD/INR, GBP/USD, and EUR/USD fail and quickly reverse, a bounce in global risk assets is likely as a weakening dollar would produce supportive tailwinds.
We’ll continue to keep you updated on the best ways to ride these developing trends and the changing market environment as new information comes to light.
