But where can we define the next logical upside objectives?
Let’s dive in…
Before tackling our targets for the dollar-yen pair, check out the Japanese 10-year yield:
The BoJ’s yield curve control policy has, in large part, capped the USD/JPY rate as traders and policymakers play a game of chicken. Traders drive the dollar-yen pair higher, challenging the Japanese central bank's hold on interest rates.
Meanwhile, the BoJ steps in with policy decisions supportive of the yen.
The most important chart in the world is back in action!
A rising US dollar is generating increased selling pressure for risk assets and global currencies.
US Treasury bonds, stock indexes, and even commodities are catching lower.
Yet it’s nothing new for the top components of the US Dollar Index $DXY (the euro leads at 57.6%, followed by the yen at 13.6% and the pound at 11.9%).
New lows and broken support have become standard for these currencies.
But King Dollar’s command is spreading to the more resilient pockets of the forex market, as fresh breakouts mount.
Here’s the US dollar-Canadian dollar pair breaking above a key retracement level to six-month highs following a litany of missed attempts:
The US Dollar Index $DXY hit a new year-to-date high on Monday, punishing other global currencies.
The euro undercut its June pivot lows. The pound dropped for the fourth consecutive session. And the yen is well within reach of its lowest level since the summer of 1990.
Other major currencies don’t stand a chance against USD strength.
If you can’t beat them, join them!
The Swiss franc might be the next to succumb to this old proverb as it prepares to bend the knee.
Check out the US dollar-Swiss franc pair pulling back after posting a new eight-year low:
Major global currencies, including the Australian dollar, the New Zealand dollar, the Japanese yen, the Canadian dollar, and the Singapore dollar, are limping lower against the greenback.
The long list could grow in coming sessions as momentum builds behind a sustained USD advance.
While the evidence suggests we lean in that direction, I always prepare to take the other side of a trade if and when the data changes.
So, what’s the best way to play a falling dollar?
Before I share my favorite trade setup, let’s look at the US Dollar Index $DXY:
DXY is finding resistance at the July pivot highs and a downtrend line originating with the March peak.