From the Desk of Ian Culley @IanCulley

"Rates, the US dollar, crude oil, and the S&P 500... repeat!"

These charts swirl atop every investor’s mind as markets await the upcoming rate hike decision.

Meanwhile, it’s messy!

The S&P 500 challenges the upper bounds of a multi-month range. The US dollar and interest rates chop sideways. And crude oil remains resilient despite increased selling pressure.

But not all markets are trapped in a trading range right now. In fact, there’s one forex cross breaking down, suggesting lower yields and cheaper crude oil…

It's the nokkie-stocky, the Norwegian krone and the Swedish krone!

Check out the triple-pane chart of the US 1o-year yield, crude oil futures, and the NOK/SEK cross:

I want to note up front that I used semi-log scale for the US 10-year yield chart. The reason: consistency, as the other two charts are in semi-log, and to present the data in the cleanest possible way.

I did not adjust the scaling to fit a trendline on the 10-year chart!...

From the Desk of Ian Culley @IanCulley

A weaker dollar remains a key ingredient for a risk-on rally. Yet, like interest rates, the buck refuses to roll over.

The US Dollar Index $DXY continues to hover well below last year’s peak, holding within a tight range for the past four months.

Today, we’ll review critical levels for DXY as this trendless action defines the chart.

We’ll also look beneath the surface for signs of broad strength or weakness and revisit a binding intermarket relationship for clues regarding the dollar’s next major move.

First, let’s define the critical boundaries of DXY’s multi-month range:

The 105 level has proven a significant area of resistance. 

On the flip side, the February pivot lows at approximately 101 mark the lower boundary of the year-to-date range. That’s where we find DXY today.

If and when the dollar index undercuts these pivot lows, a broad risk-on rally likely ensues,...

From the Desk of Ian Culley @IanCulley

Trendless price action remains the way right now for currency markets.

Yes, some of our bearish dollar trades have triggered and are trending. But most have not. 

It doesn’t mean they won’t, of course. But it would be irresponsible not to consider potential outcomes that conflict with my bearish USD thesis…

If the dollar rips, what USD dollar pair would I use to express a bullish outlook?

The answer: the South African rand.

Check out the weekly chart of the USD/ZAR pair:

The dollar has been in a strong uptrend versus the rand for more than a decade. It’s been one base breakout after another, leading to the USD/ZAR challenging its all-time highs last month. 

Those former highs coincide with a key extension level. This a logical level to witness price digest its recent rally. And it has! 

Here’s a potential six-...

From the Desk of Ian Culley @IanCulley

The US Dollar Index $DXY is dropping – and our bearish USD trade ideas are beginning to trigger.

While I tend to stick to major developed-market (DM) currencies for placing trades, I still monitor the less liquid forex pairs for information. 

I want to see DM currency strength spill over into emerging-market (EM) currencies, confirming the broadening US dollar weakness. 

As always, I strive to break it down to one level, one chart, whenever possible. 

This next chart does the job…

Here’s the WisdomTree Emerging Currency Fund ETF $CEW:

CEW is carving out a possible reversal pattern below a polarity zone, coinciding with a series of key pivot highs and lows from 2021 and 2022. 

Notice momentum has improved as price churns below resistance. This supports a potential upside resolution.

My view...

From the Desk of Ian Culley @IanCulley

Commercial hedgers are taking an interest in the Canadian dollar. 

The CFTC has finally updated its records after the recent data breach.

And, as expected, we have some extreme positioning on our hands…

Check out the chart of Canadian dollar futures with the Commitment of Traders Report (COT) in the lower pane (red line for commercials, black for large speculators, and gray for small speculators):

Commercials hold their largest net-long position since early 2019. Extreme positioning such as this tends to mark key inflection points.

Why?

Because commercial hedgers represent the largest short sellers for any given market. And strong hands move markets.

Bottom line: When commercials get this bulled up on the Canadian dollar, forceful uptrends often follow as they unwind their position.

The stage is set for a rally, but it all comes down to price.

...

From the Desk of Ian Culley @IanCulley

Fed Chair Jerome Powell spoke this afternoon after the central bank announced a 25-basis-point rate hike. 

The fed funds futures were all over the place, from pricing in a 25-basis-point increase to a double-hike. They settled in around a single hike, with a slim chance of a pause.

Exhausting!

It’s clear we can expect increased volatility going forward.

But, instead of guessing the Fed’s next step or parsing Powell's words, I’ll rather sit back, wait, and prepare to trade a decisive breakout.

When I think about the latter stages of the hiking cycle or a potential pause, my mind immediately turns to one currency in particular…

The Japanese yen.

Since the Fed began raising rates last spring, the yen has been one of the strongest trending markets. It stands to reason it could experience a significant trend reversal as the Fed changes course.

Luckily, we have a clear level to set our alerts and define risk. 

Check out the chart of yen futures:

...

From the Desk of Ian Culley @IanCulley

Fear runs rampant across financial markets as the US Dollar Index $DXY prints fresh one-month lows.

Wait… what?

I thought the USD was a safe haven.

Perhaps it is. But it appears the gig is up for King Dollar after being the only game in town for almost a year.

So what now, buy stocks?

Sounds good to me.

And I think we can start buying other global currencies too…

Check out the EUR/USD pair:

The euro is swinging back toward our risk level of 1.08 after failing to hold its breakout earlier this year.

It’s pretty straightforward. If and when it reclaims our breakout level, we’re long targeting 1.1450.

Remember, last month, the 1.08 level was our line in the sand. Below there, a USD rally had potential.

On the flip side, if the euro trades above that level, dollar bulls will have a tough time and risk assets will likely enjoy a significant tailwind...

From the Desk of Ian Culley @IanCulley

What year is it? 

Is it 2023 or 2022? Because it’s starting to feel like last year all over again…

No, Will Smith hasn’t slapped anyone (that I’m aware of). And I’m confident Bennifer 2.0 is going strong (solely based on Superbowl commercials).

But that’s not my concern. Here’s what does have my attention: the dollar and rates. 

These were big themes last year – rising in tandem – and continue to be as we head into March.

It shouldn't come as a surprise as the next chart reveals the crux of the story…

Check out the overlay chart of the US dollar index $DXY and the US 10-year yield $TNX with a rolling 126-day correlation in the lower pane:

Notice the consistent positive correlation between the US benchmark rate and the dollar since fall 2021. It all began as Federal Reserve officials swept...

From the Desk of Ian Culley @IanCulley

Markets continue to churn sideways, frustrating most investors.

Instead of allowing the market to dictate your emotions along with the herd, let it simply highlight the path of least resistance. That’s what I’m doing.

Today, I want to share with you two ways to trade the British pound – regardless of its next directional move…

The structural trend for the pound undoubtedly points sideways. A zoomed-out weekly chart makes that clear:

Yes, it has reclaimed a critical shelf of former lows. But it’s messy. And while I believe the pound and other currency pairs will begin to trend in the coming weeks and months, I have no idea what direction they will take.  

So I’m prepared to trade the British pound in either direction.

I laid out the bullish case at the end of January. You can check it out here.

Today, I want to draw attention to those former lows at approximately 1.1950, outlining...

From the Desk of Ian Culley @IanCulley

Challenging conditions prevail across currency markets. 

It’s victory at sea! 

But that’s not stopping the dollar from cutting through the chop.

Does that mean it’ll go on a run, applying downside pressure on risk assets?

It’s tough to say.

Nevertheless, I have one chart for you that provides clarity as the dollar begins to make its move.

Check out the triple-pane chart of the US Dollar Index $DXY, our G-10 currency index, and our US dollar advance-decline line:

At the top, we have six pairs dominated by the euro. I’ve been vocal about the significance of the euro trading below 1.08. It’s basic math.

The EUR/USD comprises more than half of the DXY weighting. If it’s trading below 1.08, it’s messy with downside risks – the perfect environment for a dollar rally.

It’s not just the euro. The lower two panes...

From the Desk of Ian Culley @IanCulley

It’s messy out there.

The CPI data came in a little warmer than expected today. And currency markets aren’t quite sure what to make of it.

Despite the overarching range-bound action and intraday indecision, I continue to find trade setups with well-defined risks.

Today, I’ll outline another vehicle to short a potential falling dollar – the Swiss franc.

I prepared to get long the USD/CHF pair last October. But the trade never materialized. Instead, it caught lower as the USD downtrend picked up steam in early November.

Fast-forward a few months, and I’m ready to short the USD/CHF pair.

Before we break down the setup, let’s zoom out:

The USD/CHF pair has remained in a structural downtrend since the 2000 dot-com bubble peak. We can interpret the past decade as a bearish consolidation within an ongoing downtrend. 

Some...

From the Desk of Ian Culley @IanCulley

The US dollar index $DXY has some extra pep in its step after posting three consecutive daily gains.

In fact, the past few days constitute its largest three-day gain since the index peaked in late September.

I think it’s safe to say the long-awaited USD bounce has arrived. The question now is whether it will turn into a sustained rally.

No one knows, of course. But these next two levels will help us prepare for an impactful dollar advance…

First, let’s zoom out…

The early 2017 high of 103.82 marks the first significant hurdle for the dollar index. Let’s call it 104.

If the DXY reclaims this key level, the conversation turns to the possibility of a  failed breakdown. For now, it’s simply pulling back to retest a critical level of former resistance.

If and when DXY bounces back above 104, that brings us to the second hurdle…

...