Let the Dollar Dance

From the Desk of Ian Culley @IanCulley

The US Dollar Index $DXY is chopping smack-dab in the middle of a three-week range.

Currency markets are quiet. The euro, the pound, and the yen have all dialed back the volatility.

But there’s nothing wrong with the sideways action.

And in no way does it diminish the underlying uptrend for the dollar. 

In fact, the near-term trendless range makes sense in light of DXY’s recent run and the long-term support levels in play for major currencies.

Check out the DXY with the number of consecutive up weeks in the lower pane: 

Eleven weeks in a row! The index climbed higher for almost three straight months. 

A period of consolidation not only makes sense but politely adheres to the law of gravity.

Sorry, but price doesn’t move in a straight line – even for the dollar index.

Meanwhile, the euro is running into a multi-year support level:

Aside from the euro’s breakdown below parity to a new 20-year low last year, the 103.50 area has acted as a key reversal zone since 2015.

A pause or slow roll toward the former 2015 and 2017 lows is the higher probability outcome for the euro. 

It aligns with the dollar's underlying uptrend. And it would coincide with a reprieve from the DXY rally.

Interestingly, the British pound is approaching a comparable support zone at approximately 1.1950.

Here’s the pound sliding toward a former shelf of crucial lows:

The 1.1950 level marks the spot.

I imagine buyers will show up and defend the pound at this level – if only temporarily. 

Increased buying pressure for the third most prominent component of the dollar index will assist in the dollar’s confinement – messy for longer for ol’ King  Dollar.

Let’s give the dollar a break. It just ran higher for 11 weeks in a row!

The DXY deserves a rest.

We’re witnessing a healthy consolidation within an ongoing uptrend as long as the DXY holds above 105. 

On the other hand, a decisive breakdown beneath the March highs carries good news to dollar bears and stock market bulls (stocks love a weaker dollar). 

I’m also tracking 104 as another critical area to watch. But we’ll address that level in depth if and when sellers contest it.

For now, the DXY is churning within a potential bullish continuation pattern above a crucial support level.

As long as that’s the case, the path of least resistance leads higher for the dollar.

Stay tuned!

Thanks for reading.

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