From the Desk of Ian Culley @IanCulley
Time seems to move faster during bull markets.
I have my theories, and they all revolve around having fun.
One thing is certain: The month of July is now behind us.
I can’t believe we’re more than halfway through the year and a month into Q3!
Since it’s August 1, let’s keep the good time rolling by reviewing the most important monthly chart in the deck…
It’s the US Dollar Index $DXY.
The US dollar acted as a Chief Headwind for Global Risk Assets last year, with a little help from the Fed.
DXY broke down to fresh 52-week lows last month, only to almost immediately turn higher. The long lower shadow on the monthly candle highlights the reversal, indicating an underlying demand at a critical polarity zone.
If DXY closes back above its Dec. 2016 closing high of 102.38 this month, we might be dealing with a failed breakdown.
And from the looks of it, our custom USD advance-decline line (comprising 29 USD pairs) has pointed in that direction all along.
When DXY printed fresh 52-week lows, and the G-10 currency index retested its year-to-date lows, our US dollar advance-decline line had yet to undercut its pivot lows from mid-June:
Fast-forward to today, and all three lines are catching higher – DXY included.
A couple weeks of strength hasn’t erased months of meandering. But if a failed DXY breakdown comes to fruition on the heels of a swift rally, risk assets will fall under pressure.
It all depends on which risk assets we’re talking about. Commodities and cyclical value-oriented stocks will likely better withstand dollar strength since they benefit from elevated rates.
On the other hand, headwinds will increase for the major US stock indexes.
JC will cover the intermarket implications in tomorrow night’s LIVE Monthly Charts Strategy Session.
Please join us!
ASC Premium Members can click here to register for the call.
Thanks for reading.
Let me know what you think. I love hearing from you!
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