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USDOLLAR Technical Analysis: Bullish Start to a Bullish Month

USDOLLAR Technical Analysis: Bullish Start to a Bullish Month

2016-01-04 20:10:00
Tyler Yell, CMT, Currency Strategist

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Talking Points:

-US Dollar Technical Strategy: Buy the Dip Above 100-DMA

-Bull-Flag Resistance under Pressure Again

-Seasonal Tendencies Favor USDStrengthfor January

Have you heard of the USD Smile? It’s a concept developed by a sell-side bank research department that noted the US Dollar tends to out-perform in the best of times, and the worst of times. However, in the middle, the US Dollar is often an underperformer as carry trade takes over and other market forces. Unfortunately for equity bulls, it feels as though the Dollar outperformance is about to be due to the weak global economic output. Whether you look at Oil, monetary policy divergence, or the potential credit bubble popping, it is hard to imagine blue skies ahead for the global economy for the next few years. Today, we also got word from SF Fed President Williams who said that 3-5 rates hikes this year appears appropriate because U.S. expansion is on solid ground.

Technically, the US Dollar has been sluggish off the bottom back in May of last year. While the price of US Dollar continues to print marginal new highs and higherlows, we have yet to see anything close to the 2H 2014 & 1Q 2015 move in the US Dollar that was nearly vertical. The recent higher low that is highlighted on the chart is encouraging for multiple reasons. You will notice a confluence of the 50% Fibonacci Support, 100-day Moving Average, & Median Line support via Andrew’s Pitchfork that the price recently bounced off of in December. Should that bounce be a corrective terminus, we should look for a break and close above the December 17 high of 12,206 as validation that the upside has resumed.

Above the 100-day moving average, the preference will remain to buy-the-dip in US Dollar. Currently, the US Dollar remains cheap on a relative basis, and the valuation could grow to make upside attractive on US Dollar as monetary policy divergence continues. Today’s range was roughly 190% of the ATR(5) meaning there may be a few days of mean reversion in volatility, but any downside may be an opportunity before new highs. While we are very early in the month, January is historically the US Dollar’s best month of the year. Given the macro backdrop at present, this appears like a great environment to build long US Dollar exposure.

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USDOLLAR Technical Analysis: Bullish Start to a Bullish Month

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