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US DOLLAR Technical Analysis: How the Mighty Have Fallen

US DOLLAR Technical Analysis: How the Mighty Have Fallen

2016-03-17 19:10:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

  • US Dollar Technical Strategy: Short On Hold of 200-DMA As Resistance
  • US Dollar Sees Largest 2-Day Drop since Topping in March 2015
  • US Dollar Below 1-year 3-Standard Deviation Channel

After Wednesday’s Federal Reserve Meeting, the US Dollar has fallen aggressively. After holding up the US Dollar as a form of support over the last 9-months, the 200-DMA now looks to be firm resistance. This move lower in the US Dollar is giving a lift to other assets like WTI Crude Oil and equities. However, this 5-month low in the US Dollar appears to be a potential tipping point, either we bounce higher to resume the longer-term trend, or the big drop has possibly just begun.

US Dollar Now Faces The 2009 Peak As Potential Support

US DOLLAR Technical Analysis: How the Mighty Have Fallen

Interested In our Analyst’s Longer-Term Dollar Outlook? Please sign up for our free dollar guide here.

What you will notice above is the US Dollar sitting near long-term support. The channel is drawn off the 2011-low and has done a fine job of encasing price action save the sideways move in H1 2014. Now, channel support has aligned nicely with the 2009 intraday high of 11,854. What happens from here could help us see whether or not sentiment got too bearish and is due for a rebound or if the floor is about to fall out below the US Dollar.

From an Intermarket analytical point of view, a much weaker US Dollar would relieve a lot of tension (more on that note below). However, the market forces and monetary policy divergence of major central banks still seem to favor more Dollar strength ahead.

US Dollar Comes into 1-Year 3-Standard Deviation Channel Support

US DOLLAR Technical Analysis: How the Mighty Have Fallen

Earlier, we warned the 11,850 was an inflection point for the US Dollar (lower yellow rectangle on chart). It is near the daily low for October 15 when price bottomed before touching a 13-year high. A break below 11,850 zone opens up the 161.8% extension of the January 29 high and lower high in late February of 12,211, which sits at 11,721. Lower still is the corrective low and 38.2% retracement of the October 2014 low and April 2015 high, that encompasses 11,687/34.

On the upside, resistance is a good distance from the spot price as we’ve had the largest 2-day drop since the US Dollar topped out around the March 2015 Federal Reserve announcement. Both Wednesday’s announcement and last year’s announcement effectively told the market to calm down their expectations of Fed Hawkishness. Either way, the price has fallen 218 points from Wednesday’s high and into the 1-year 3-standard deviation channel.

Initial resistance will now be the polar 200-day moving average at 12,053, which acted as strong support at 2H 2015 and could now be seen as resistance going forward. Shortly above there are two lower-high price pivots at 12,077 & 12,111

The Big Risk Ahead, Reversed

In the last post, we mused that the US Dollar is no longer a drag on the Federal Reserve to hike and hike multiple times. However, we have seen the Federal Reserve as recently as March 17 show the market that they are sensitive to external pressures of US Dollar strength as well as the deflationary forces of a strong US Dollar. In other words, a strong US Dollar is weighing on global credit ratings, commodities like WTI Crude Oil, and other global currencies. If the Fed continues to discourage Dollar strength, 2016 could look much different than previously anticipated.

T.Y.

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