While most uptrends have come under pressure in December, the rally in US Dollars has remained strong.

The US Dollar Index $DXY has been climbing in a near-vertical line since it bottomed at the lower bounds of its range three months ago.

Today, DXY is attempting to break out of a base as it trades at its highest level in over two years.

The US Dollar Index $DXY is sitting at the top end of the range it’s been stuck in for the past two years, and the stage is set for a move lower. 

This has significant implications for a variety of asset classes, including precious metals, equities, and Bitcoin, all of which stand to benefit from a weaker dollar environment.

Back in October, Steve highlighted the divergence in the dollar and the potential for a bounce higher. 

In a matter of days, the dollar ripped in a nearly vertical line toward the upper bounds of its range.

Today, the picture is very different than it was back in October. 

With a tough seasonal period setting in, along with resistance overhead and a bearish momentum divergence, our tactical outlook for the dollar is lower from here.

You're overthinking the whole dollar and oil connection. 

As a trader, I love finding intermarket relationships to guide the way I look at markets. While those links matter, I have to remember that they aren’t set in stone. They change as the world changes. 

War and energy production can really shake up these correlations.

In early 2022, the correlation between the dollar and oil hit a 20-year high.

With stock market investors looking every which way at different market-moving headlines today, let's take a step back and talk about what's really important.

We just got monthly candles. It's time to zoom out. 

And when we do, is there a chart more important than the US Dollar Index $DXY right now?

The dollar has had a very strong inverse correlation with stocks and other risk assets for several years now.

Equities have done well for the past two years while the dollar has been rangebound. 

Just imagine how they'll do if DXY breaks down from its current range:

The dollar is weaker than you think. 

This is a major development in the forex market. And when we look under the hood, things are even worse than they appear for the greenback.

With more and more global currencies showing relative strength each day, it’s time to take a look at US dollar internals and see what’s moving. 

Relative strength is not just the cheat code for stocks, it also works for the currency market and everything else in between. 

We also learn a lot about the breadth of a given market through analyzing internals. This helps us determine how we want to position ourselves to make money. 

And right now, it looks like we should position ourselves for a lower dollar over longer time frames. 

The following table shows the US dollar is in, or moving toward, a bearish trend regime against most other major currencies.

The question we're asking ourselves today is a big one.

Is the US Dollar breaking down from a multi-year consolidation?

With the dollar rangebound all year, we haven’t experienced a trending currency market. 

When the dollar is trending higher or lower, we have a good idea of the impact it is likely to have on other markets.

However, when it is trendless, the dollar is neither a headwind nor a tailwind for risk assets.

We think that could be changing.

Here's a weekly line chart showing the U.S. Dollar Index making new year-to-date lows:

As you can see, the US dollar bears have taken control and resolved this multi-year consolidation to the downside.

Here's another way to look at it.

From the Desk of Ian Culley @IanCulley

The US Dollar Index $DXY is finishing the day relatively unchanged.

Today’s much anticipated CPI print failed to move the needle for the greenback.

On the flip side, $DXY’s most significant component – the euro – is ripping toward a new year-to-date high.

Check out the EUR/USD pair completing a seven-month bullish reversal pattern, retesting its January high:

The path of least resistance now leads higher.

I like buying the euro against the 1.0958 breakout level, targeting 1.1250. But I'm out if the EUR/USD slips into its prior range.

A pop in the euro tends to weaken DXY since it makes up 56.7% of the index, acting as a bullish catalyst for stocks. 

Yet the dollar continues to hold above last Monday’s low.

From the Desk of Ian Culley @IanCulley

Let everyone grumble over the Japanese yen.

I get it. The yen was cast as the villain decades ago, and something or someone must take the blame for the VIX hitting 65 earlier this week.

While I prefer to point my finger at the preceding low-volatility environment, the November election, and potential rate cuts, the yen certainly played a part. 

But the real question isn’t who, what, when, where, or why. 

Instead, every investor wants to know…Was that it? 

Is the selloff over?

I think the worst is behind us. 

Here’s why…

Check out the USD/JPY chart with a 200-day simple moving average in bright blue (with the percentage above or below the long-term average in the lower pane):

In many ways the yen carry trade is a play on interest rates.

From the Desk of Ian Culley @IanCulley

Remember when anything priced in yen was trending higher?

It wasn’t too long ago that if you were looking for an uptrend, all you had to do was throw the yen in the denominator, and voila.

Just last month, the dollar hit a new 34-year high against the yen—levels not seen since the 1980s.

But the tables are turning in favor of the Japanese currency.  

While most central banks are either cutting interest rates or considering future rate cuts, the Bank of Japan (BOJ) is hiking—a policy shift that puts a bid beneath the yen…

A couple of months ago, I highlighted buying yen futures above .6500.

Fast forward to today, and I’ve adjusted the entry-level to the former 2022 and 2023 lows at approximately .6625:

From the Desk of Ian Culley @IanCulley

One week, the buck is breaking down. The next, it’s ripping higher.

With commodity currencies rolling over, the dollar-yen sliding lower, and the US Dollar Index $DXY failing to hold its recent breakdown… 

What’s it going to be this week? 

So far, the Bulls are in control. 

But that could change if dollar bears violate these critical levels…

First, track the 1.0915 zone for the euro: 

A decisive break above that level will apply pressure on the buck and set an upside target of 1.1125.

Next, keep an eye on the pound.

From the Desk of Ian Culley @IanCulley

The bull market is back! 

The major indexes are hitting new all-time highs, and so is gold. 

Small-caps are ripping. Crypto is ripping. And the most heavily shorted names on the street are squeezing higher.

I’d expect the US dollar to break down as stock market bulls rush to put their greenbacks to work. 

Instead, the US Dollar Index $DXY is holding steady. Dollar-yen is refusing to roll over.

And risk-on commodity currencies – the Australian, Canadian, and New Zealand dollars – are failing to trigger buy signals.

Stock market bulls don’t seem to care about the lack of risk-on signals from global currencies. 

From the Desk of Ian Culley @IanCulley

The talking heads are forecasting choppy market conditions and a significant correction for Q3.

News flash: The market has been messy for months. And we already experienced a stealth correction beneath the surface.

I’ll keep an open mind, but if commodity currencies start breaking out…

Forget about it!

Stocks have weathered the US dollar’s recent rally. 

Imagine how they’ll perform once the dollar rolls over, especially against risk-on currencies like the New Zealand dollar.

Check out the NSD/USD pair coiling within a symmetrical triangle after retesting its 2020 low: