We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Bearish
Wall Street
Bullish
Gold
Mixed
GBP/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • The Dow Jones could fall based on positioning signals, will the growth-linked Australian Dollar and Canadian Dollar follow? If so, what are the technical barriers ahead? Find out from @ddubrovskyFX here:https://t.co/yJrlR5C00P https://t.co/3yPoDUHnfG
  • #Singapore GDP shrinks most on record as city-state enters a recession #SGD falls, #USD gains #StraitsTimes eyeing support What is the road ahead for $USD/SGD? - https://www.dailyfx.com/forex/market_alert/2020/07/14/US-Dollar-USDSGD-Gain-Singapore-Enters-Recession-on-Record-GDP-Drop.html?CHID=9&QPID=917702&utm_source=Twitter&utm_medium=Dubrovsky&utm_campaign=twr https://t.co/HvcLpEh6NG
  • Join @DanielGMoss's #Webinar at 10:00 PM ET/2:00 AM GMT for his weekly coverage of trading prep for $AUDUSD in the week ahead. Register here: https://t.co/wi1qabrtHJ https://t.co/13qB60OlJV
  • Further gains in USD/IDR could be curbed as USD/PHP establishes a floor around 2017 lows. USD/MYR may fall next as USD/SGD fast approaches a key falling trend line.Get your #ASEAN currencies market update from @ddubrovskyFX here:https://t.co/9JgZm2n8Fl https://t.co/KqeCR8z3Du
  • RT @Reuters: U.S. Senate to begin debate on new coronavirus bill next week: McConnell https://t.co/qPKEV0fLa9 https://t.co/O33B0ITYaa
  • If you issued your own bond as a person (let's say 10y) how high do you think your yield would be?
  • Market snapshot: US equity futures up, #AUD, #NZD down.
  • Singapore Dollar cautiously weakens against the US Dollar following disappointing #Singapore GDP data $USDSGD #SGD https://t.co/7mRV62n82s
  • WOW Singapore Q2 GDP -41.2% on QoQ on an annualized basis. Est: -35.9% - BBG
  • This Singaporean GDP reading for the second quarter does not bode well for the 'rest of world' figures due over the next few weeks. I would not be surprised if China simply 'weathered' this global impact with Thursday's release... https://t.co/HiflgPvptk
Dollar Leans Towards Important Bearish Breaks, Will Liquidity Save It?

Dollar Leans Towards Important Bearish Breaks, Will Liquidity Save It?

2018-11-17 12:00:00
John Kicklighter, Chief Strategist
Share:

Talking Points:

  • DXY Dollar Index marked a 16-month high this past Monday, but reversal patters are starting to form
  • Liquidity – deflated by the US holiday – will play a key role in determining its ability to forge breaks
  • See how retail FX traders are positioning in Dollar-based majors like EURUSD on the sentiment page

Technical Forecast for US Dollar: Neutral

A technical break does not guarantee trend intent. That is something that I like to repeat to myself in order to anchor my expectations in more grounded analysis rather than simply chase the promise of volatility. The Dollar embodied that lesson this past week when the DXY Index and EURUSD charged Monday to the highest level (lowest for EURUSD) since June 2017. The world’s most liquid currency and the most frequently referenced measure for the individual currency signaled a key high, why wouldn’t speculative interests pick up on the move? In reality, if we look to this currency’s habits around previous high-profile technical breaks, we find a pattern of the market’s immediately losing traction after clearing key levels. Good examples are the August charge above 95.65 which at the time stood as the neckline to an inverse head-and-shoulders (H&S) pattern that had formed between July 2017 up until that point. And just to show this is not a directionally-biased reticence, the September slide below 94.75 and/or 94.30 could have qualified as the neckline break of a standard H&S developed over the preceding four month. This currency – like many other benchmarks – simply lacks for definitive conviction.

Chart of DXY Dollar Index (Daily)

Dollar Leans Towards Important Bearish Breaks, Will Liquidity Save It?

Another handicap in using the DXY – for which I like to adjust – is the excessive exposure it pays to the EURUSD. If we look to an equally-weighted index of the most liquid Dollar-based majors, the speculative leverage insinuated in this past Monday’s move never really showed up. The peak fell with the broader month-long range and held to the rising trend channel formed throughout 2018. In fact, the retreat the currency put in through the rest of the week leverages a more remarkable technical picture towards the bearish end of the scale. As you can see below, there is a standard H&S pattern with a neckline at 1.1300 (the level does not matter here as this is not a tradable asset but rather a representative index). Such a pattern stirs the speculative beast in me, but the same restrictions in market activity should be accounted for regardless of the direction or the measure. If there is a break lower followed by some meaningful follow through next week – insinuating a broad retreat for the currency – I will consider it a stronger and possibly more actionable signal. The problem though is that there is going to be a curb on liquidity and therefore intent ahead.

Chart of Equally-Weighted Dollar Index (Daily)

Dollar Leans Towards Important Bearish Breaks, Will Liquidity Save It?

When a technical break or reversal fails to gain significant traction it usually does so for a few reasons: either the move simple doesn’t excite the animal spirits or there simply isn’t enough of a market to facilitate the move. If there are any efforts to earn a break for the Dollar or any of its primary crosses (EURUSD, GBPUSD and AUDUSD have notable, proximate technical levels) I will immediately process my expectations through an evaluation of market depth. The second half of the coming week will be drained owing to the United States’ Thanksgiving holiday. This is by no means a global event, but the anticipation of a key financial hub being offline nevertheless sidelines speculative ambitions. Also, given its timing in the week, normal activity levels for Friday are deflated and anticipation often sees Wednesday restrained as well. Of course, there is always the possibility that this year may be different. There are plenty of systemically-important fundamental themes skulking around the market and volatility in 2018 has proven prone to repeated, sudden fits. It is worth mentioning that the Dollar has reestablished its positive correlation to activity levels particularly over the past six months. Below, the 20-day (1 trading month) rolling correlation between the DXY and CBOE’s EURUSD Volatility Index has turned strongly positive. That being said, if volatility deflates as usual, it can help facilitate low-intensity bearish range swings for pairs that offer them: GBPUSD and USDCAD in particular but USDJPY could qualify as well.

Chart of DXY Dollar Index, CBOE’s Euro Volatility Index and 20-bar Correlation (Daily)

Dollar Leans Towards Important Bearish Breaks, Will Liquidity Save It?

As we plot out the Dollar’s – and broader market’s – next move, we should look beyond the immediate hurdle for liquidity. In the final week of November and beyond, we are likely to see a higher degree of volume and volatility from the markets than is typical for the ‘holiday’ conditions owing to the unique systemic features of 2018’s landscape. If volatility persists despite expectations, it is likely to leverage an appetite to de-risk. That leaves us in an existential quandary with the Greenback. In such a scenario, would it be a haven as it has been in previous eras or has it imbibed too much from its carry trade status with the Fed’s march of rate hikes? Speculative positioning may help determine at least the medium-term response to a swell in risk aversion. Futures positioning over the past six months has shown an incredible swing from the heaviest net-short position in five years to the most dense net-long exposure in two. That likely puts it at odds to risk trends short of a financial panic – for which the Dollar will offer the most available taps of sheer liquidity.

Chart of Net Speculative Positioning in Dollar Futures Contracts (Weekly)

Dollar Leans Towards Important Bearish Breaks, Will Liquidity Save It?

Other Weekly Technical Forecast:

Oil Forecast – US Oil Has Three Days of Stability Against Six Weeks and 30% Of Tumble

British Pound Forecast – Sterling Seeks Further Brexit News

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.