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US DOLLAR Technical Analysis: USD Set To Outperform On Center Stage?

US DOLLAR Technical Analysis: USD Set To Outperform On Center Stage?

Tyler Yell, CMT, Currency Strategist

Talking Points:

-US Dollar Technical Strategy: USD Continues To Hold Above 21-DMA (12,158)

-Focal Resistance at YTD High of 12,219

-Intermarket Analysis & Monetary Policy Divergence Favors Buying Weakness Due To Risk: Reward

The US Dollar index has shown both resilience above key range of support between 12,104 and 12,127, and a lack of fuel to break out to new highs. The November 19th sell-off has recovered, but now the question is whether or not that low will hold. If the November 19th low of 12,108 does not hold, and we get a close below that trend pivot, there is a reason to fear the YTD high has been put in place. First, December is historically a very rough month for the US Dollar. Consequently, December is a great month going back to 2002 for the SPX500, which hasn’t closed down in December in 12 years, and December is also a great month for the Euro. This week also brings the Janet Yellen testimony to Congress and the ECB Rate Announcement where QE is expected to provide clarity on Mario Draghi’s Congested Trade, and not to be outdone, Non-Farm Payroll is this Friday.

With all the circumstantial evidence, it’s difficult to get in front of the US Dollar on the downside, and US Dollar is currently best sold tactically against individual currencies like the New Zealand Dollar or Australian Dollar, which are outperforming the G10. Until the key support zone breaks, highlighted in yellow, we could have a larger polarity point on our hands. A polarity point on the chart happens when resistance turns into new chart support. As you can see, for a majority of the year, the key support mentioned above was key resistance. After the break on November 6th to 12,219, we have may crossed over into a more secular bullish environment for the US Dollar. The key support continuing to hold will be paramount evidence of that occurence. A valid short-term support zone is the 21-DMA at 12,158, that also aligns with the Weekly S1 support.

The US Dollar basket is lacking contenders beyond the Australian Dollar to the US Dollar index decisively lower. The Aussie’s strength has come Glenn Stevens of the RBA continues to disappoint those looking for more easing. In fact, of 26 bond markets tracked by Bloomberg, Australian bonds have been the biggest losers of the year as a lot of the expectations for RBA to resume a dovish stance has gone unfounded. Beyond the RBA, a trader would do well to ask themselves whether or not the Central Banks of the ECB, BoJ, and in some degrees, the BoE have met their respective extremes of monetary policy divergence? If your answer is no, the US Dollar could continue to strengthen against a basket of currencies. If the answer is yes, a break below the November 19th low may be one of the first credible signs that a top is in place.

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US DOLLAR Technical Analysis: USD Set To Outperform On Center Stage?

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