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US DOLLAR Technical Analysis: Defensive Dollar Tests Fib Support

US DOLLAR Technical Analysis: Defensive Dollar Tests Fib Support

Tyler Yell, CMT, Currency Strategist


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Talking Points:

-US Dollar Technical Strategy: ST Weakness before Strength Resumes

-Key Support of 12,040 to Determine Dollar Fate

-Seasonal Tendencies Favor USD Weakness Until 2016

The day after the Federal Reserve decided to move away from the Zero Interest Rate Policy, the US Dollar rallied within a handful of points away from the 2015 high of 12,219. Since Thursday, the US Dollar has been defensive and continued to squeeze lower. The squeeze lower aligns with the seasonal tendencies of the US Dollar to fall, while risk-on currencies like the New Zealand Dollar move steadily higher. Short-term tactical traders may find opportunities selling the US Dollar, but should the price remain above 12,040, the swing trade favors upside to continue, especially when January rolls around. January is seasonally the US Dollar’s best month.

The chart below explains the technical picture of US Dollar with deep retracements into Fibonacci support that has been followed with a strong trend resumption move higher. The channel drawn on the US Dollar daily chart is a regression channel in black starting with the May low. Currently, the price sits right on the least-squares regression line, which basically states that were at the channel mean, and the channel hasn’t broken yet. A tighter price channel is drawn with Andrew’s pitchfork in blue drawn from key closes in September-October show the price is still set to move higher even in the midst of choppy and sometimes volatile holiday trading.

The frustration around US Dollar is that 2015 has not had the same fervor of US Dollar in the second half of 2014 as the price moved nearly vertical. 2016 will have more surprises than many expect as we digest how aggressive the Fed will be when they decide on the second and third rate hike. However, looking at the chart below, the price is well within two bullish channels and above the 100-DMA at 12,048. Currently, any moves toward the 100-DMA can be seen as an opportunity to buy US Dollar at a good risk: reward, with a stop on a close below the 100-DMA.

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