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Bearish Key Reversal in Place in USDOLLAR - Will it Mark the Top?

Bearish Key Reversal in Place in USDOLLAR - Will it Mark the Top?

2016-01-22 12:25:00
Christopher Vecchio, CFA, Senior Strategist

Talking Points

- EUR/USD eases further after ECB uses meeting to restore credibility.

- Major reversal in energy markets spilling over to CAD-crosses.

- Follow trader sentiment in USD/CAD with live DailyFX SSI updates.

We've been fairly skeptical of the USDOLLAR Index's recent attempt at a breakout, and recent price action may vindicate that view shortly. A bearish daily key reversal was posted yesterday, nonetheless at yearly highs, as a sharp reversal in AUD/USD and GBP/USD removed the two main catalysts for the greenback's kick higher in recent days.

With traders pressing the US Dollar lower again today, it's hard to ignore what's happening in USD/CAD - something we've previously identified as a leading pair for the USD-complex (similar to how GBP/USD can be impacted by Euro-Zone data, the Canadian Dollar is a bellwether for the US Dollar as Canada is the number one export destination in the world for American-made goods. Needless to say, it's time to give respect to the CAD-crosses, especially if oil markets stabilize.

Likewise, if USD/CAD reverses, is this foreshadowing a broader move among USD-pairs? It's possible, especially if the catalyst is the converge of market expectations and Fed expectations for the rate hike path this year. Markets are now only pricing in one rate hike in 2016, whereas the Fed has said it intends to raise rates around four times. If the Fed backtracks on its recent hawkish tone, short-term US yields could fall, undermining a key source of support for the US Dollar.

See the above video for technical considerations in EUR/USD, USD/CAD, EUR/CAD, GBP/CAD, USD/JPY, and the USDOLLAR Index.

Read more: ECB Preview: No Change Today, Maybe in March; Depends on EUR/USD

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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