From the Desk of Ian Culley @IanCulley
The US dollar isn’t going down without a fight.
Investors weren’t given much time to celebrate the breakdown as it quickly turned into a potential failed breakdown.
Before we get ahead of ourselves, it could simply turn into a hard retest.
It happens all the time.
So let’s check the charts…
The US Dollar Index $DXY is trading back above a critical shelf of former lows:
As long as it’s above that level – let’s call it 101 – the odds of a failed move increase.
On the other hand, price could chop sideways for longer than anyone cares to believe.
It’s a real possibility, especially when zooming out on the daily chart:
It just so happens DXY stopped falling at a key retracement level at approximately 99.
That’s the same level where price paused for a month during last year’s rally.
Coincidence? Perhaps. But it obviously pays to apply Fibonacci analysis.
The market is indicating the new range for the dollar index lies between these two retracement levels.
And DXY remains a range-bound mess despite its recent breakdown.
Nevertheless, I’m still bearish on the US dollar based on the recent oversold momentum reading.
Earlier this month, DXY registered a sub-30 14-day RSI for the first time since December 2020.
It’s been a while, but bears have made their mark as momentum has shifted in their favor.
I’ll lean on this data point until bulls drive the dollar higher.
If the recent downside resolution is indeed a failed breakdown, I expect a swift move above 101 for DXY.
But more sideways, choppy conditions favor the bears and augur a downside break.
Both conditions suit global equities, as stocks will benefit from anything but another rip-roaring dollar rally.
Thanks for reading.
Let me know what you think. I love hearing from you!
And be sure to download this week’s Currency Report!
Premium Members can log in to access our Weekly Currency Report. Please log in or start your risk-free 30-day trial today.Lost Password?