Potential Hurdles for the Dollar

From the Desk of Ian Culley @IanCulley

Have you noticed these trends driving the markets?

Commodities are ripping. The energy sector is outperforming. Interest rates are climbing while US treasury bonds fall apart…  

Of course, we can’t forget about the US dollar’s rally.

I continue to err in the direction of these underlying trends. But the dollar rally will likely run out of gas soon…

Check out the US Dollar Index $DXY printing its highest level since November. 

My near-term DXY bias flipped bullish late last month. Aside from improving momentum and multiple tests of overhead supply, our bullish USD trades shifted my outlook.

The tactical shorts in the British pound and New Zealand dollar were in play and have now hit our targets.

Unsurprisingly, the pound flashed another sell signal last week with the euro.

Here’s the EUR/USD undercutting a shelf of former lows:

As I outlined in early February, I’m short the euro below 1.0745 with a target of 105. 

Regardless of geopolitical tensions or this, that, and the other, I will take profits at our target. It’s a logical level for the euro to bounce, and if you’ve traded the EUR/USD, you know it likes to back and fill.

A rebound in the euro will put pressure on the US dollar.

The greenback-loonie rally is also reaching a logical level to pause:

Since last fall, a significant supply zone at 1.3850-1.3900 has capped USD/CAD rallies. I imagine it will do the same in the coming weeks. (This doesn’t mean it will.)

Both dollar pairs could break in favor of the USD. However, a digestion period at these former support and resistance levels will likely come first.

The euro and loonie account for sixty percent of the US Dollar Index. If more than half of DXY is contending with sellers, the dollar rally will stall at the very least.

Last year’s high of 107.35 is a reasonable pit stop for the dollar. If buyers drive right through those former highs, watch out for 109.

Too simple?

Do you think DXY will rip to a new 52-week high?

What am I missing?

-Ian

Thanks for reading.

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