From the Desk of Ian Culley @IanCulley
For weeks, I’ve been itching to call a top in the US Dollar Index $DXY.
Sentiment, volatility, and momentum thrusts have all suggested an end to the US dollar wrecking ball. But price hasn’t indicated any significant weakness in the structural trend.
The absence of confirming price action has made it impossible to take a bearish USD stance.
But that’s finally starting to change!
First, here is what the US dollar/Canadian dollar pair looked like back in mid-October:
The USD/CAD peaked along with the DXY in late September, forming a potential flag pattern. If completed, these continuation formations resolve in the direction of the underlying trend.
But an upside resolution wasn’t in the cards for the USD/CAD. Instead of ripping higher, price turned lower and chopped sideways.
The lack of upside follow-through was a red flag! When continuation patterns do not resolve in the direction of the underlying trend – pay attention!
As it turns out, last month’s continuation pattern became this week’s reversal.
The USD/CAD completed a multi-month head & shoulders top on Friday, printing its largest single-day loss since February 2016.
The significant momentum thrust indicated the bears were in control, adding to the conviction of the breakdown. It’s not surprising we’re seeing downside follow-through today.
As long as the USD/CAD holds below 1.3525, we like it short toward 1.3050.
But it’s not just the Canadian dollar. The Australian and the New Zealand dollars also failed to complete similar continuation patterns.
The US dollar is on the ropes, and we’re starting to see its struggles come through in price.
If today’s action holds, it could mark the end of King Dollar’s current reign.
For now, I’m in wait-and-see mode.
Stay tuned for a more comprehensive bearish outlook for the dollar.
Thanks for reading.
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Allstarcharts Team