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U.S. Dollar Bearish Channel Persists as Heavy Week of Drivers Begins

U.S. Dollar Bearish Channel Persists as Heavy Week of Drivers Begins

2017-06-26 14:30:00
James Stanley, Strategist
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Talking Points:

- This week brings a series of drivers to the fray for global markets, with a heavy outlay of Central Banker speeches that can keep markets volatile throughout the week.

- The U.S. Dollar continues to trade within the 2017 bearish channel, and a recent resistance check may be opening the door for deeper losses in the Greenback.

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This week brings a loaded economic docket to global markets, with an emphasis on what’s become a favorite pain point of inflation. The week has already started on a brisk note as a 47-year high was recorded in the German IFO Business Climate survey, and the net reaction was a quick gust of strength in the Euro and a burst-lower in Gold prices.

But also on the calendar for this week is pertinent data for every day through Friday, along with some key Central Banker speeches that will likely elicit considerable attention. Fed Chair Janet Yellen is set to speak in London tomorrow afternoon, and we also hear from Williams, Harker and Kashkari throughout the day on Tuesday. John Williams speaks again on Wednesday and we hear from James Bullard on Thursday. We also have the ECB forum kicking off today, which will see BoE Governor Mark Carney, ECB President Mario Draghi and BoJ Governor Haruhiko Kuroda offer comments on Wednesday. Below, we’re looking at the DailyFX Economic Calendar with the high impact events for the U.S. Dollar for the week ahead.

U.S. Dollar Bearish Channel Persists as Heavy Week of Drivers Begins

DailyFX Economic Calendar: High Impact Events for the U.S. Dollar for the week of June 26th, 2017

U.S. Dollar Longer-Term Bearish Trend Channel Remains Intact

Since the Federal Reserve’s rate hike earlier in June, the U.S. Dollar has been trying to move into a bullish trend, albeit tenuously. On the morning of that rate hike, a series of bad U.S. data prints had brought-on a fresh seven-month low in DXY: But after the hike, buyers have been trying to push the Greenback higher as we can see as indicated by the ‘higher-high’s on the hourly chart below.

U.S. Dollar Bearish Channel Persists as Heavy Week of Drivers Begins

Chart prepared by James Stanley

Current resistance is showing in DXY around the 50% Fibonacci retracement of the May, 2016 to January, 2017 major move at 97.87, and this level is confluent with the mid-line of the bearish channel that’s defined DXY price action for much of the year, so far. Since this level of resistance has come back into-play, bulls have been losing ground, giving the appearance of oncoming bearish continuation of the ‘bigger picture’ trend. On Thursday of last week, we had looked at support structure in USD with emphasis on the 97.50 level for a potential ‘higher-low’. That support has not been able to hold, and at this stage, it appears that near-term bearish momentum is beginning to mesh with the longer-term bearish trend.

U.S. Dollar Bearish Channel Persists as Heavy Week of Drivers Begins

Chart prepared by James Stanley

Topside EUR/USD for USD-Weakness Strategies

On the short-side of the Dollar is a trend that’s still rather attractive, and we’re referring to the long side of EUR/USD. The pair gapped-higher to open the week, and after a quick gap-fill, price action has moved right back-up to a key level of resistance at 1.1212. This is the 61.8% Fibonacci retracement of the ‘lifetime move’ in EUR/USD, and for the past 21 of the past 30 months, we’ve seen numerous elements of support and/or resistance off of or around this level.

U.S. Dollar Bearish Channel Persists as Heavy Week of Drivers Begins

Chart prepared by James Stanley

But perhaps more interesting for the bullish side of EUR/USD is the fact that with this recent gust of USD-strength after the Fed rate hike two weeks ago, EUR/USD has remained rather well-supported on a longer-term basis, with respect to prior swing-lows in mid and latter-May. This means the pair retains its bullish structure on longer-term charts, and for those looking to sell the Greenback, this could be a very interesting setup.

On the sentiment front, IG Client Sentiment is currently showing a reading of -2.75-to-1, which is a bullish indication given the contrarian element of retail sentiment.

U.S. Dollar Bearish Channel Persists as Heavy Week of Drivers Begins

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for DailyFX.com

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