From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The US Dollar Index $DXY resumes its relentless march higher.

But the full story surrounding the dollar’s dominance is a bit more complicated.

Lately, we’ve been pounding the table about the narrow scope of the DXY, as 83% of its weightings come from just three currencies – the yen, the pound, and the euro.

All three continue to lose ground versus the dollar, and this is exactly what's driving the rally at the index level.

On the other hand, the USD has not performed as well against other currencies – especially emerging markets and commodity-centric ones. 

While this remains the case, we’re starting to see USD strength expand beyond the major components of the DXY. We're also seeing some nice long-term patterns materialize that favor the US dollar.

A great example is the rounding bottom in the US dollar-Korean won cross – USD/KRW.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The turmoil in equity markets has stolen all the attention since last year. But stocks aren't the only asset class that's a mess. We're getting the same kind of mixed signals and sloppy price action from forex markets.

While stocks remain under pressure, currencies have been throwing head fakes and dishing out whipsaws all year long. The AUD/USD broke to fresh nine-month highs just last week only to reverse 200 pips by Friday’s close.

We're seeing this type of action from currencies all over the world. It’s hard to trust a breakout these days. As frustrating as these failed moves may be, there are some clean chart patterns and favorable setups shaping up right now.

One area where the trend is very clear is the Japanese yen. Just about anything priced in Yen has been rallying recently as the currency continues to collapse.

Today, we’re going to highlight the massive base in the USD/JPY.

Lets’ dive in.

Here’s the weekly chart of the USD/JPY cross:

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

King dollar is sitting perched upon its throne. But the floor beneath it is beginning to crumble.

The rally in the US dollar index $DXY isn’t as strong as today's fresh highs would suggest. In fact, when we dig beneath the surface, the dollar is only trending higher against a few currencies over shorter timeframes, while underperforming the vast majority.

Conveniently, the handful of currencies the USD continues to best are the most heavily weighted components of the US dollar index.

This lack of internal strength can be seen pretty much anywhere outside of the chart of DXY itself. Whether we're looking at our USD trend summary table, our custom USD advance-decline line, or the individual crosses themselves, it all suggests the current trend in the dollar lacks support. 

Let’s take a look.

Our USD trend summary table illustrates both the broad weakness as well as those critical areas of strength that are driving the current uptrend in the DXY:  

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Rates continue to move higher around the world as central banks do their best to combat inflation. 

As investors, our best course of action is to position ourselves in those areas that benefit most from rising rates.

Commodities and cyclical stocks immediately come to mind. But there are also specific currencies that tend to excel in rising rate environments.

Today, we'll discuss a handful of emerging-market currencies with heavy commodity exposure. 

We’ve been waiting on these currencies to catch higher and confirm the price action in commodities since last year… and it looks like it’s finally happening.

Let’s dive in.

First up is an overlay chart of the US 10-year yield and our equal-weight basket of EM commodity currencies:

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The unwind is on in the aussie!

After accumulating a historic net-long position last fall, commercial hedgers are scrambling to cover. Over the past four weeks, the smart money has trimmed its long exposure to roughly half of what it was.

This is reflected in our most recent Commitment of Traders Heatmap, which you can view here.

When positioning flips at extremes – like we’re seeing now in the Australian dollar – we want to look for opportunities to ride the emerging trend. In other words, we want to bet in the direction that commercial hedgers are currently unwinding away from. 

In the case of AUD, they recently had a historic net long position. As such, we’re looking for bullish technical characteristics to see if a long setup makes sense here.

It just so happens that things are really coming together for the aussie chart lately. We love when technicals and sentiment line up like this.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

For more than a year, most of the market and many of our risk ratios have been a trendless mess.

High Beta vs. Low Volatility, Copper vs. Gold, and our custom Risk-On vs. Risk-Off ratio have all gone nowhere since the beginning of 2021.

The Australian dollar/Japanese yen also falls into the range-bound category, as the risk-on pair looks a lot like the ratios we just mentioned.

But AUD/JPY has been showing resilience the past few weeks and is currently challenging the upper bounds of its multi-month range.

Since most risk appetite indicators aren’t giving us much in the form of new information these days, an upside resolution from AUD/JPY would be a major development. 

It hasn’t happened yet, but things are certainly setting up that way.

In today’s post, we’ll dive into one of our favorite risk-on/risk-off gauges – the AUD/JPY cross - and discuss what it’s currently suggesting about risk-seeking behavior.

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.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Currency markets are reacting to the war that’s broken out in Europe.

In the past four trading sessions, the Russian ruble has dropped more than 1,000 pips against the US dollar.

And, with fear growing that these initial days of fighting will turn into a protracted conflict, weakness is striking the euro as well.  

Let’s take a look at the EUR/USD cross and outline the levels we’re monitoring in the coming weeks and months.

Here's a daily chart of the EUR/USD going back to the pandemic lows:

After completing a large distribution pattern last September, the EUR/USD pair has been consolidating for the past several months and trading in a range between 1.1483 and 1.1121.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Despite the trendless nature of the major forex pairs, there’s still plenty of information coming from the exotics right now – particularly emerging market currencies.

The Chilean peso – and its relationship to copper – now has our attention.

Let’s take a look.

Here’s a chart of the USD/CLP cross overlaid with Copper Futures $HG_F with a correlation study in the lower pane: 

Chile is the world’s largest copper producer, which explains the strong negative correlation between the USD/CLP pair and the price of copper.

You can see this relationship in the chart, as USD/CLP tends to peak and roll over at the same time copper bottoms out, and vice versa. 

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Consolidation and range-bound action have dominated the currency market since late last year.

While commodities and cyclical stocks -- especially energy -- continue to catch a bid, commodity-centric currencies like the Australian and Canadian dollars fail to show any definitive signs of strength.

At the same time, the US dollar isn’t doing much either, as the US Dollar Index $DXY has been chopping sideways for several months.

Long story short, indecision is the overarching theme for forex markets at the moment.

One forex pair that does an excellent job of illustrating the trendless nature of these markets is the AUD/JPY.

Here’s a chart of the AUD/JPY cross:

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The US dollar can’t catch a bid.

Since briefly reclaiming its November highs last month, it’s been nothing but down and to the right for the US Dollar Index $DXY.

Many global currencies have reacted by catching higher – especially the euro. But commodity-centric currencies – like the Canadian and Australian dollars – have had a more muted reaction. We think that’s likely to change in the coming weeks and months.

With interest rates on the rise around the world and crude oil prices pushing above 90, we think it’s just a matter of time before we begin to see some real strength from these currencies – especially if we see a sustained downtrend in the USD.

Today we’re going to highlight one of these forex pairs, as we think it’s poised for a major move. Let’s talk about the USD/CAD.

Here’s a weekly chart of the USD/CAD cross:

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Commodities and cyclical assets have remained resilient, defying headwinds from the US dollar for nearly a year. 

But the US Dollar Index $DXY is sliding lower as evidence mounts in favor of further weakness…

Could those headwinds soon fade away?

Today, we’re going to highlight some critical developments and discuss what they mean for the US dollar, stocks, and commodities in the weeks and months ahead.

Let’s dive in!

First is a chart of the US Dollar Index $DXY:

Its inability to hold above the November 2021 highs screams "failed breakout!"