Last week I wrote about the EUR/USD nearing major resistance. The last paragraph was important to understand, in my opinion:

“Conventional wisdom would tell you after the ECB meeting (Mario Draghi hinting at more action in March) and the FOMC a little less dovish than the market expected this week, the pair would move lower from here. But sometimes in the market conventional wisdom doesn’t always pan out.”

As the market starts to think/believe that the FOMC is not going to be able to deliver multiple rate hikes as originally thought (think December expectations) the risk is that the EUR/USD starts a “retracement cycle” which in my opinion, could take us back into the high teens (1.1500+) especially if US economic data continues to disappoint.

Here is an updated chart:

2-3-16EURUSD

The NFP this Friday is going to be an important number, especially for the USD this week. A weak reading could lead to a breakdown in the DXY, therefore a move higher in the EUR/USD. A breakout by the end of the week above 1.1060 would be a pretty bullish sign for the EUR/USD.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I am looking to establish DXY shorts in the coming days

 

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For a USD pair, the USD/SEK is showing some relative strength compared to other USD pairs this week. It’s worth noting as it has been a leading indicator for the DXY from time to time over the years.

10-15-15USDSEK

Here is the USD/SEK weekly chart. Notice how the weekly candle is attempting to create a “Hammer” formation at the range lows.

10-15-15DXYUSDSEK

Here is the USD/SEK (candle) and DXY (blue line) weekly charts. Notice how the USD/SEK surged many weeks ahead of the DXY in early 2014

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

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The US Dollar (DXY) has been under significant pressure the last week, and we may have just tested a critical support for long term traders who are looking for longs.

Before we take a look at the chart, let’s talk about the reasons (the market believes) the DXY has pulled back:

 

  • Recent market turmoil has traders and investors thinking the Fed won’t raise rates in September, and some don’t think rates will go up until next year. Barclays just revised its outlook from September till 2016 due to volatility in the market. Although I think the market is having a mini tantrum (think taper tantrum in May 2013 when the Fed announced it would taper asset purchases and the markets fell) but I am not sure it is a done deal that the Fed will cater to the needs of the market at this time. Keep in mind this is the Yellen Fed, not the Bernanke Fed. I believe the Bernanke Fed was a little more sensitive to market forces. The Jury is still out with Janet Yellen at the helm.
  • Traders and Investors note that the “carry trade” unwind in the EUR denominated trades are being unwound as stocks and commodities fall. Correct me if I am wrong, China’s rates are just over 4%, Australia at 2%, New Zealand at 3% and Mexico at 3%. Tukey is at 7.5% which could make sense for a “carry” trade. In a world where most central banks are near ZIRP, I can’t see this being a huge catalyst and not very attractive to hold carry trades with such small rate differentials and accounting the volatility associated with holding a trade. Especially with some of the said currencies under performance in recent years. I think the next reason could be the bigger catalyst.
  • The market has been aggressively long the USD this last year. But as Forex Live reported last week, EUR shorts continued to trim positions (previous to the recent EUR surge). Is there still lopsided positioning long the US Dollar at this point? Perhaps, but I would assume after the move in the EUR/USD this last week or so, it is more “neutralized” as US Dollar longs got liquidated.Since the DXY is weighted 56.7% EUR, this may be a key point.

 

How much more US Dollar weakness will there be?

Based on this long term chart of the DXY, I think we are closing in on some serious support.

8-25-15DXYblog

DXY is testing the breakout points from 2004-5, and also still is in a bull flag formation. We just tested this week the 38.2% Fibonacci retracement level near 92.50.

Personally, I am now on the lookout for US Dollar longs.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

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The USD has been range bound the last 1+ months, and I am now starting to look for an area for a bounce, or strategic place to enter US Dollar longs. Here is what I see:

4-27-15DXY

The USD index is pushing channel lows, but the 23.6% Fibonacci retracement level comes in at the wedge breakout point (95.30) from the beginning of March. Also, it looks like a channel is forming that coincides with that breakout point near 95.30 level as well.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

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I have always learned (in trading) to “plan your work, then work your plan.” If you listen to my daily webinars, I spend 3.5 hours a day talking strategy on how I would like things to shape up in the markets before I take action. Does that mean that all my plans come to fruition? No, not at all. However, if I have some sort of template or plan of what I am trying to do, it helps me forge my intraday and swing trading strategies in the currency market.

Today, I talked about my trading plan the next couple weeks for the USD index. I am hoping the market plays out this way and helps guide me in my FX trades. Funny thing is I don’t even trade the DXY. I trade FX crosses like the EUR/USD, AUD/USD, USD/JPY, etc. But understanding the basic trajectory of the USD index can help shape my decisions in the crosses. By the way, the USD/JPY makes up about 13.6% of the USD index, however never is factored into my equation when trading USD pairs since the USD/JPY tends to be more sensitive to yields and risk trends than the USD index.

The DXY index broke higher following the FOMC minutes yesterday. This created a double bottom in the USD index, broke a “bearish wedge” (should have broke lower but instead broke higher) and looks to be on the way to testing range highs. However, the double bottom has a projected target above the recent trend highs. If we break higher, I am looking for a target of about 101.50 which is a 127% extension of the recent range:

4-9-15DXY1

If this rally does happen, it is likely to be viewed as a squeeze as there have been so many traders trying to call a “top” in the USD as of late. That type of behavior is very common when you see very explosive and strong trend like the one in the USD index in recent months. Frankly (I have to admit) I agree with that thesis, however have had a difficult time trading it lately. So, I have been buying the USD (mostly) on dips as of late instead of trying to short the USD.

If the DXY does move higher as planned and makes a brief new high, the monthly 61.8 retracement level is at about 102.00. I have felt the last couple weeks that the 61.8% Fibonacci level at 102.00 has been “unfinished business” for the USD bulls anyway.

4-9-15DXY2

If we hit the 101.50-102.00 I would be looking for a longer term reversal (or bigger consolidation) of the US Dollar Index.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

 

 

 

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You have probably heard most of the fundamental arguments by now about why you should own US Dollars. The FOMC is within months to raise rates for the first time in years, yet most other central banks are either lowering rates, imposing negative deposit rates, or perhaps unleashing their own versions of quantitative easing. Perhaps you have heard that monies are coming back to the USD because the US economy is faring much better than the rest of the world. Perhaps you have heard that the Chinese, Indian and other emerging market economies growth surges of the last couple decades have started to slow. The argument points are valid. Frankly, I agree with them. The questions that many are asking is “Has the US Dollar rallied too far, too fast? Is all the good news priced in? Is the USD rally over?”

When asked these questions I have to look at the pair technically, and see if there is any historical evidence that the USD (or better known as the DXY) is ready to reverse?

Months ago we looked at the DXY as it tested a 29 year trend line, and since then it recently stopped at its 50% Fibonacci retracement. This is important since we have seen it also stopped at a 50% retracement level back in 2001 from the 1985 highs to 1992 lows.

Over the last week, it has been brought to my attention that the USD index was (again) hitting the 29 year trend line. I was perplexed at the time, but realized that chart that those people were referencing were logarithmic style price charts on the DXY. Normally, that makes sense when looking at a longer term history of a security (let’s say like MSFT, the DOW, or maybe the NASDAQ) that has been through many splits or massive percentage gains over the years. The USD index which has not seen multipliers of gains or losses over the years is best viewed from a linear (arithmetic) price chart. That is a personal preference but here is the logarithmic chart traders are looking at:

2-18-15DXYLog

(log chart showing we are touching 29 year trend line, also testing the 50% Fibonacci level)

Here is the linear chart I have been looking at:

2-18-15DXYMonth

(linear chart showing we broke the 29 year trend line in November 2014)

Regardless of which chart you prefer to use, I think we could all agree on the fact that the USD is at a major inflection point. So the next question we have to ask is if the USD index will continue to rally or not. Looking at the daily chart I was able to find some answers.

2-18-15DXYDaily

(continuation patterns on the daily chart as RSI is back to mid point)

The last 3 legs higher (see below) have been met with an overbought Relative Strength Index (RSI) reading of above 70. When that happens, the DXY tends to consolidate as the overbought readings subside and the RSI comes back towards the midpoint (as it is now). At that point, the USD seems to make another push higher.

If the USD makes another push higher, it may be a big one. I suspect many in the trading community may be trying to fade a USD move since the consensus is that the USD long position has become overly crowded. On a breakout, that may just add fuel to the fire to the current USD rally. If the USD does push into new highs, we may breach that 50% retracement (just below 96.00) and push towards the 61.8% (or golden fib level) which is past 101.00 on the US Dollar index.

Sentiment change can be a huge shift in the market. The 29 year trend line has been broken. That’s longer than most of you have been participating in the markets, including me!

 

Blake Morrow

Chief Currency Strategist, Wizetrade

@pipczar

 

Disclaimer: I am currently long some USD’s against the AUD, NZD and CAD. I am currently seeking to add to my long USD exposure in the coming week(s)

 

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The last time the DXY was my EDGE Chart of the Day the DXY peaked within pips of what we had expected. Since then the USD has been consolidating, slowly building a “flag” pattern on the 4 hour chart. Based on this chart below, the USD index could pullback towards the 127% extension at 92.93, just above the major breakout point from November 2005 (faint blue line 92.65) which may be the next buying opportunity for the USD index (92.70-90). Here’s the chart:

 

2-5-15DXY

 

Blake Morrow

Chief Currency Strategist

 

Disclaimer – I am short some USD’s (via spot market) currently, but may flip to long in the coming session(s)

 

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The USD index (today) has stopped near its 50% retracement of the highs in 2001, to the lows set in 2008, at 95.48 (50% retracement is at 95.85).

The reason why this should be alarming for USD bulls is the “last time” we had a major bounce from 1992 – 2001 the USD index also stopped near the 50% retracement (high was 121.02 and the 50% retracement was at 121.46).

H/T to @keepitrealdude for bringing to my attention.

1-23-15DXY2

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I am long USD through the AUD, NZD and CAD crosses. Yes, I am nervous.

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I have to break today’s EDGE Chart of the Day into two chart. First is the daily chart od the USD Index, DXY:

1-8-15DXY2

As you can see in the “Daily Chart” We have completed two flag patterns. But what is more important is the weekly chart:

1-8-15DXY1

We have rallied to major resistance (blue line) from 2005, and very close to the highs at 92.63. (overnight, the high was 92.52).

I suspect the recent run higher in the USD has run its course, or it is close to running its course. There are 3 key events at the end of the month. ECB Meeting January 22nd, Greek elections the 25th, and FOMC Meeting on the 28th. After such an amazing US Dollar bullish run, I suspect that the market could get a little choppy as we complete this major technical pattern so close to key resistance ahead of these key events.

Blake Morrow

Chief Currency Strategist

 

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The USD/SEK is approaching critical resistance on the weekly chart as we approach the 8.0000 level. Like the EUR/USD as it approaches the 1.1700 level (critical support of 1.1639 Nov 2005 lows) a lot of these levels will hold or break dependent on the actions of the ECB in the coming weeks.

The USD/SEK 8.000 level (as seen below) has a confluence of the 61.8% Fibonacci retracement level from 2008 highs to 2011 lows. Also a 161.8% Fibonacci extension from 2012 highs to 2013 lows. This confluence (approx 8.0000) will be a major congestion level until after the ECB meeting January 22nd. I suspect a break or rejection of this level will take place following the ECB meeting.The ECB will influence the EUR/USD exchange rate which tends to be an inverse relationship to the USD/SEK.

1-5-15USDSEK

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I have been long the USD/SEK exchange rate for the last several weeks.

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