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Dollar Technical Analysis: DXY Bounces After Trading At 2017 Lows
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-Dollar Technical Strategy: breaking below LT trend support, breakdown 99 worrisome
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The ICE Dollar Index, which measures the dollar against a basket of six major currencies, slid to its lowest level since November this week on news that the Trump administration’s health care bill was pulled before the House voted on it. The situation has prompted doubts on the administration’s ability to steer further legislative changes that would induce inflation and may mean the Fed will not be pushed into further unplanned interest rate hikes.
Technical View: DXY broke below the Feb low of 99.23 to a 98.86 this week. New yearly lows tend to not be buying opportunity for trend traders. The rebound we’ve seen later in the week is not too surprising as mid-week, USD/JPY and EUR/USD were the currency pairs in the G10 + Crosses where spot was furthest away from the 20-DMA. Therefore, a pull-back to the mean is anticipated. However, the next move will be telling, further weakness, which has fundamental backing, would likely mean we’re moving into a 2016 pattern of DXY weakness in the coming months.
To guide my opinion on DXY, I watch the heavily weighted EUR (57.6% of DXY basket), which is rising and could continue to rise given the US/German 10-Yr yield spread is near the narrowest level in 3-months. Over this week, we’ve seen EUR strength and a further narrowing in US/German spreads favoring EUR strength despite the recent pullback.
The chart below shows LT Bearish MACD Divergence. Be on the watch for a further breakdown, which divergence favors, but does not guarantee.
Bearish Divergence On Weekly Chart Puts Weight On Downside Bias
For traders looking for life in the greenback, resistance comes in at 101.01, the March 13 low and the recent range 61.8% retracement. A break above 101.01 would show an overlap from a previous downtrend that could mean a break higher is developing and should be co-joined with EUR weakness. However, a failure for the price to surpass 101.01 could mean upside remains limited, and the price is merely consolidating before another fall instead of reversing higher. In this scenario, further downside is favored.
H4 DXY Chart With A Lot Of Resistance Overhead
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Chart Created by Tyler Yell, CMT
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Shorter-Term DXY Technical Levels for Thursday, March 30, 2017
For those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours of trading.
T.Y.
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
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You can follow Paul on Twitter at@PaulRobinonFX.
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EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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