Dollar Talking Points:
- The DXY Dollar Index suffered its biggest weekly loss since the week of August the 20th
- Historical range and volatility (ATR) on key pairs like the EURUSD are staging at extremes lows
- See the 1Q 2019 fundamental and technical forecast for the Dollar updated on our trading guides page
Technical Forecast for US Dollar: Bearish
On a strictly statistical basis, the Dollar closed out a particularly painful week. Yet, the context of its broader technical patterns and environment suggests we are not yet in a position to expect the revival of a genuine trend. Extending its impressively precise range reversal from 97.75, the DXY dove back into the middle of its congestion pattern stretching all the way down to support defined by the confluence of the trendline reaching back to May and the 200-day simple moving average now at 95.80. From Friday close to Friday close, the index dropped approximately 0.8 percent for the worst slide since the week of August the 20th. Before that, we don’t have a comparable performance until February of last year – when the currency was searching out the bottom of its 14-month bear trend. This move promises little for the development of a new phase beyond the established range. On the other hand, volatility applied to tightly bound spaces runs a greater and greater risk of prompting a breakout – especially as key events like this coming week’s FOMC rate decision pop up.
Chart of DXY Dollar Index with 200-Day Moving Average (Daily)
For the big picture overview of the Dollar, we can see the extremes in the dwindling space found from the rising triangle reaching back to the early May lows. The rolling 60-day historical range on the index as a percentage of spot price (seen below) is the most restrictive trading we have seen from the currency since the Summer of 2014 – a period synonymous with extreme inactivity. So long as this technical pattern continues to close, the reading will continue to drop towards unprecedented levels. The question to follow this formation is whether a simple break will immediately signal a categorical shift into a ‘breakout’ environment. General market conditions suggest a mere technical development alone – even from a currency of this heft – would not earn a transition. However, if the break happens alongside or is prompted by a groundswell of speculative motivation, we could jump to a trend fairly quickly. And ‘when’ (not ‘if’) that happens, I feel the bearish case has greater weight.
Looking for a fundamental perspective on USD? Check out the Weekly USD Fundamental Forecast.
Chart of DXY Dollar Index and 3-Month Historical Range as Percent of Price (Weekly)
As we keep tabs on the 97.75 to 95.80 range that currently reflects the currency’s principal borders, we must keep very close observation of volatility – both expected and historical. We see both measures of activity below. The red line is the 20-day ATR or average true range. While we are still moving in generally the same range as previous months, the day-to-day activity has constricted. While this can remain the case for an extended period time, there is certainly a contrarian element to the reading as we confer to the higher time frames, the historical reference and how narrow the technical bounds are at present. In terms of expected volatility, I have aggregated the CBOE’s volatility measures derived from EURUSD, USDJPY and GBPUSD – the three most liquid pairs. While this reading has also slid from peaks in November and January, it draws a notable contrast to the ‘actual’ volatility measure.
DXY Dollar Index and Avg of CBOE’s EURUSD, USDJPY, GBPUSD Vol Indexes and ATR (Daily)
Looking to the key, individual currency pairs, the EURUSD draws an even more dramatic picture than the DXY itself – which is ironic as this pair is the primary component of the index. We could look at the daily chart, but we see much the same and don’t see the context of where the market is likely to move when it does eventually clear its immediate hurdles. To the downside we have 1.1200 support as a range floor and confluence of Fibonacci levels. A bearish break has plenty of subsequent, interim levels to question momentum at along the way; but ultimately the 1.0350 swing low from late 2016 is the far target. A resolution to the upside would be far more likely to indulge the start-and-stop progress. I would expect second guessing of commitment to trend every 100 pips or so.
Chart of EURUSD and 20-Week ATR (Weekly)
When reference the stoic rise of the Dollar, USDJPY is one of the pairs where the single currency is making some of the most remarkable progress. The rising trend channel for the key pair since the Flash Crash to start the year has covered 400 pips from rational lows and 700 pips when we incorporate the extreme volatility on January 3rd. As impressive as the channel may be, it is not offering much in the way of slope – average daily advance. There is little doubt that a 112 break would be bullish progress but it wouldn’t ignite a dramatic climb. A break below 111 on the other hand could prompt deeper reflection, but I would still place greater emphasis on EURUSD clearing 1.1500 if I were looking for a Dollar cue.
Chart of USDJPY (Daily)
Meanwhile, GBPUSD has offered some of the most remarkable trading amongst the majors stretching back over the weeks and even months. Yet, what volatility we have seen from Cable is heavily dependent upon the Sterling rather than the Dollar’s own contributions to activity. Brexit headlines have earned more than a few remarkable swings and was clearly the spark for pair’s biggest single-day rally since April 2017 this past Wednesday. It is possible that further updates on this theme next week can spark a breakout and perhaps even a trend, but extrapolating a lasting Dollar run from GBPUSD’s clearance would be a serious stretch.
Chart of GBPUSD with 50-Day Moving Average (Daily)
As for speculative positioning to fuel a meaningful move ahead, the net speculative futures standing from the COT suggests the currency is not stretched to the same extreme as we would draw from the DXY’s test and rejection at 97.75. That said, exposure is still stretched in favor of the bullish view and adding to that position will likely take more significant encouragement whereas a reversal can likely be prompted more readily as traders rush to rebalance. From the retail side, FX traders have flipped negative EURUSD for the first time since early February. The short-term perspective of this crowd is clear, as is their observation of the explicit levels on the exchange rate. Expect this group to continue to play the range and meet serious surprise when there is an eventual break.
Chart of Net Speculative Positioning in Dollar Futures Positions from CFTC Report (Weekly)
Chart of Retail Trader Positioning from IG Clients (Daily)
Other Weekly Technical Forecast:
Weekly Trade Levels for US Dollar, Euro, Sterling, Loonie, Gold & Oil
DXY, Euro, Loonie Monthly Opening-Ranges Intact
The US Dollar Index is trading into the monthly opening-range highs into the start of the week and the focus is a reaction around the 98.05/10 resistance zone- note that the monthly ranges in Euro and Loonie also remain intact. In this webinar we review updated technical setups on DXY, EUR/USD, USD/CAD, GBP/USD, Crude Oil (WTI), Gold, USD/JPY, AUD/USD, EUR/AUD & SPX.
Why does the average trader lose? Avoid these Mistakes in your trading
Key Trade Levels in Focus
DXY – Immediate focus is on topside resistance at 98.05/10. Initial support at 97.87 with near-term bullish invalidation raised to 97.71.
EUR/USD – Euro is coiling into the monthly opening-range just above slope support. Immediate focus is on support at 1.1140. Initial resistance at 1.1187 with near-term bearish invalidation at monthly-open resistance at 1.1215– look for a bigger reaction there IF reached. A break lower would expose 1.1110.
GBP/USD – Sterling broke below multi-month slope support last week with price responding to near-term pitchfork support into the open. Initial resistance at 1.2798 with bearish invalidation at 1.2859. Downside support objectives at the August low-day close at 1.2697 and the 100% extension at 1.2662.
Gold – Risk for near-term recovery while above the yearly / monthly low-day close at 1270. Initial resistance at 1280 with near-term bearish invalidation with the monthly open a 1283.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Key Event Risk This Week
Economic Calendar – latest economic developments and upcoming event risk
Active Trade Setups:
—Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex
AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop
AUD: The Aussie outperforms following a shock election outcome, in which Prime Minister Scott Morrison secured re-election (full story). In reaction, the Aussie gapped higher at the Asia open, reclaiming the 0.69 handle against the greenback. However, as equity markets have headed lower throughout the European morning, risks are for gains to be faded. Alongside this, key headwinds in the form of trade war tensions and a potential RBA June rate cut are likely to limit upside. Reminder, RBA Governor Lowe due to speak tonight after RBA meeting minutes (calendar)
Crude Oil: Oil prices surged at the Asia open as Saudi Arabia signalled that cuts could be extended throughout the remainder of 2019 at the JMMC meeting, while President Trump had also stepped up his critical rhetoric towards Iran. Although, with equity prices beginning to push lower, oil prices have pared the majority of its initial gains.
Equities: US equity futures have headed lower amid the continued crackdown by the US on China’s Huawei, which in turn has chipmakers come under pressure, while Google also stated that they are to restrict the company’s use on android services. Elsewhere, Apple’s price target had been cut by HSBC to $174 (median street price target = $220), citing concerns over China, while tariff led price increases on Apple products could also have dire consequences on demand. Apple shares currently lower by 2.4% in pre-market.
Source: DailyFX, Thomson Reuters
DailyFX Economic Calendar: – North American Releases
WHAT’S DRIVING MARKETS TODAY
- “Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low” by Nick Cawley, Market Analyst
- “COT Report: Japanese Yen and Euro Shorts Collapse, USD Longs Reduced” by Justin McQueen, Market Analyst
- “Crude Oil Price May Be Carving Out a Top” by Paul Robinson, Currency Strategist
- “Using FX To Effectively Trade Global Market Themes at IG” by Tyler Yell, CMT , Forex Trading Instructor
— Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.email@example.com
Follow Justin on Twitter @JMcQueenFX
Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low
Gold (XAU) and Silver (XAG) Price Analysis and Charts.
Gold (XAU) Needs to Support to Hold
The sell-off on gold continues with the precious metal down around $30 in less than a week. Gold is under pressure from a resurgent US dollar, buoyed by last Friday’s Uni of Michigan data which smashed expectations and hit a multi-year high. The important 61.8% Fibonacci retracement level at $1,287/oz. failed to provide any support when broken last week, while the $1,287 – $1,281/oz. zone made up of old horizontal support is being tested now. A clear break and close below opens the way to the recent double bottom around $1,266/oz. which is currently being guarded by the 200-day moving average at $1,268.6/oz. Below here the 50% Fibonacci retracement level at $1,262/oz heaves into view.
Gold (XAU) Daily Price Chart (August 2018 – May 20, 2019)
Silver (XAG) Nears a Fresh Six-Month Low
Another precious metal under heavy selling pressure. Silver is now at levels last seen in early December last year and is over 11% lower since making its recent high of $16.21/oz. in late February. The downtrend since the late-February high continues to be respected and it is possible that silver completely retraces all the way back down to the November 14 low at $13.89/oz. Psychological support at $14.00/oz. may slow the decline, while the CCI indicator shows that the market is extremely oversold.
Silver (XAG) Daily Price Chart (August 2018 – May 20, 2019)
IG Client Sentiment data show that retail traders are 79.1% net-long gold, a bearish contrarian indicator. Recent daily and weekly sentiment shifts give us a stronger bearish contrarian bias.
— Written by Nick Cawley, Market Analyst
To contact Nick, email him at firstname.lastname@example.org
Follow Nick on Twitter @nickcawley1
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