US Dollar and GOLD Technical Analysis

The three keys components that provided support were the Ichimoku Cloud base on the Daily Chart, which is comprised of the 50% retracement over the last 52 data periods. While price did break below the cloud technically, we did not see the lagging line (bright green) break into the cloud, and we did not see a strong move lower once price pierced the cloud, but rather price moved sideways before beginning this week’s retracement.
An eventual break below last week’s low of 99.23, followed by a lagging line move into and through the Ichimoku Cloud would be the clearest Ichimoku sign of a larger breakdown developing in DXY.

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A zone of resistance to watch on the bounce would also be the 38.2-61.8% retracement region of the 2017 move, which is housed at 100.99-102.07. The wost case for Bulls (best case for Bears) would be a move to this zone that pivots and breaks above the zone above. A break above the Fibonacci zone could be indicative that we've seen the low in the USD for a while.

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Daily

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-Recent DXY updates have noted that “if a broader decline is underway, then resistance probably needs to register (again) near the channel line that has been resistance and support since Brexit…the 55 day average is up here too.” Resistance is holding and a possible head and shoulders top is evident and would confirm on a drop under the February low. Even then, trendline support registers below 98.00. Watch for range support near 99.80.


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USD has done an impressive pivot from worst to first in G10FX. While the economic data has begun to disappoint relative to expectations in the last few weeks, make no mistake that the story in the US Yield Differential seems to show that momentum could continue to push USD higher against weaker currencies like the Canadian Dollar or New Zealand Dollar.

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This week, we’ve seen on the back of multiple Fed speakers the probability of a March Fed Hike surge from below 50% to ~90%. This has aligned cleanly with USD strength.

This week has seen impressive moves in favor of the USD against the British Pound, which looks like it could move back below 1.20 if we break 1.22. Additionally, USD/CAD is sitting at its highest level since the first week of trading in 2017 with a price move above 1.3400. Currently, support for USD/CAD sits near 1.325. Two other impressive moves have been registered by EUR/USD, which recently punched below 1.05 and USD/JPY that may soon make a move toward 116 if the price can close above the 55-DMA at 114.67. However, it’s difficult to get too excited below 114.96, which was the mid-February high, and could be Triangle Pattern Resistance.

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Daily

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-DXY continues to trade on parallels that are defined by the 2016 support line (from the May low). The yearly opening price is 102.38 and could influence for a reaction. I’d also pay attention to 100.39 (March 2015 high…here we are 2 years later by the way at the same level!) for support. A break through one of these levels ideally offers something to work with from a trend perspective.

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The Dollar Index is the simplified approach to judging the strength of the world’s reserve currency. However, looking simply at the DXY to analyze USD strength would be a short-sighted given the recent dynamics in the market. Over the last week we’ve seen the USD swing into strength most notably against currency pairs that do not make up large weights in the DXY.

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The DXY is weighted heavily in favor of Euro (57.6%), followed by Japanese Yen (13.6%), British Pound (11.9%), Canadian Dollar (9.1%), Swedish Krona (4.2%), and Swiss Franc (3.6%). The most dominant strength in March has been seen in a handful of these components of DXY, such as the Canadian Dollar. The real strength can be seen in other commodity currencies, hence the drop in Oil like the Australian and New Zealand Dollar, Norwegian Krone, and a handful of Emerging Market Currencies.

This week, a strong bump at the front-end of the UST yield curve, notably 2’s has aligned with the view that the Fed has the engine started and the gas tank filled in anticipation of a long cycle of hiking rates toward normalization. Friday’s Non-Farm Payroll is only expected to add to the conviction of multiple rate hikes to come starting with one at the March 15 FOMC. The stronger USD may continue to build pressure against commodities linked to the price of Oil, which recently settled below $50/bbl for the first time in 2017.

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-“DXY continues to trade on parallels that are defined by the 2016 support line (from the May low). The yearly opening price is 102.38 and could influence for a reaction. I’d also pay attention to 100.39 (March 2015 high…here we are 2 years later by the way…basically unchanged!) for support. A break through one of these levels ideally offers something to work with from a trend perspective.” Decision time as DXY is trading 100.39! A weekly close below the level would suggest that the path is lower.

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Welcome to the world of dovish hikes. Though Janet Yellen hiked rates and released the Dot Plot to show the Fed expects to raise rates two more times in 2017, the Dollar fell against a basket of significant trade partners to the lowest levels since Feb. 8 on Monday. The uptrend that began in May remains intact but also looks to be hanging by a thread, and a break below 99 could open up a further flood of USD selling.

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It was revealed on Friday afternoon via the Commitment of Traders report from the CFTC that institutions were holding a record short in the Eurodollar futures market. A short position is a bet on a rising London Interbank Offer Rate that is based on USD Funding costs. Therefore, a short Eurodollar position, which was sitting at record levels was a hawkish trade that failed. The failure was mainly due to the Fed not lifting their expectations and one Fed Member, Neel Kashkari, opting not to raise rates.

Technical View: The level worth keeping tabs on in the DXY looks to be 99.23, which is the February low and a little greater than 1% away from spot on Monday afternoon. For a breakdown in DXY to occur, we’d likely need to see a sharp rise in the heavily weighted EUR (57.6% of DXY basket), which is fully possible given the US/German 10-Yr yield spread is near the narrowest level in 3-months, which favors EUR strength. Additionally, we’ve seen the options market show a lack of EUR fears with the one-week

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Daily

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-"DXY continues to trade on parallels that are defined by the 2016 support line (from the May low). The yearly opening price is 102.38 and could influence for a reaction. I’d also pay attention to 100.39 (March 2015 high…here we are 2 years later by the way…basically unchanged!) for support. A break through one of these levels ideally offers something to work with from a trend perspective." DXY has broken 100.39 so focus is on the trendline (originates at May 2016 low) and 200 day average just below 99.00. If that breaks, then DXY is a full-fledged bear.


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DXY held trendline support at the March low. I was looking for the rebound to fail near 100.72. It did until Friday’s surge, which has almost been completely retraced. Big moves are only allowed to happen with very few on board. That’s the point of these shenanigans; to rid the market of the weak hands so that the market can move freely in its chosen direction.


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“DXY held trendline support at the March low and just found resistance from the median line of the 2016 channel. I don’t have a strong opinion on direction right now but the barriers are the January-March line and 2016 trendline. A move on either side of these lines (daily close) ideally ushers in the next directional move.”

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