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US DOLLAR Technical Analysis: Why You Should Watch This Opening Range

US DOLLAR Technical Analysis: Why You Should Watch This Opening Range

2016-05-02 15:25:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

  • US Dollar Technical Strategy: Short Bias Favored Below 11,850
  • 21-DMA Continues To Act As Firm Resistance on Move Lower
  • Opening Range Breakout Would Offer Enticing Value Breakout/ Buy

After printing a 14-year high on January 29 when the Bank of Japan announced negative interest rates, the US Dollar Index has fallen by a little more than 5%. While Momentum can be a self-sustaining phenomenon, it's worth paying special attention to the US Dollar this Month. Specifically, the May Opening Range and keep on alert for a bullish breakout.

April shaped up to be a rough month for the US Dollar after following the lead from March. If you remember, last April, many were convinced the US Dollar had topped, but that sentiment only lasted until Mid-May where the US Dollar would then go on a 8 Month Run to top out again in January on a Negative Interest Rate Announcement by the Bank of Japan.

US DOLLAR Technical Analysis: Why You Should Watch This Opening Range

To some, the chart may appear to show the US Dollar may have topped. Unfortunately, we’re not sure if that’s the case. However, you will be able to note on the chart going back to Sprint 2003 that the US Dollar has recently turned lower off resistance and has now found support. Additionally, US Dollar typically from a seasonal point of view (a strategy that played well in April) outperforms in May.

We’ve Just Hit A Corrective Equality Point with the March 2015 Correction

A theme that we’ve continued to track, and that doesn’t appear to be letting up is the driving force for US Dollar bearishness with hedge funds and other institutional speculators. Such a development of an institutional bias to sell-USD shows that the path of least resistance continues to favor more downside. Looking at the recent Commitment of Traders report from the CFTC, the difference between the Commercial Hedgers and Institutional Speculators is at a 52-week extreme with hedgers long, and speculators short as speculators are the shortest they’ve been since Summer of 2014.

Additionally, one environment that has favored US Dollar strength has been volatile environments. Recent Macro Events have passed leaving little fear now and focus turning to the EU Referendum and the potential Brexit outcome as the next key event risk. The only problem for those wanting volatility (and wanting it now) is that the referendum vote is nearly 2-months away. One scenario to be on the watch for if May doesn’t bring out the USD Bulls is that we could be entering a grind lower in the US Dollar like we also saw in the low-volatility environment of 2014, which did ultimately lead to a breakout. However, the breakdown took place after many speculators left the Dollar position out of boredom only to be nearly forced back in due to the velocity of the move.

Shorter-Term US Dollar Chart Favors Focus on 21-DMA & 11,907

US DOLLAR Technical Analysis: Why You Should Watch This Opening Range

In the chart above, you’ll note that the top line of the short-term bearish (red) channel hasn’t been touched apart from the later February high where the channel was originated. The upper channel line aligns with the 21-DMA around 11,847. Earlier, we spoke about the significance of an opening range breakout for the month of May, a move above the 21-DMA would also be significant as the price of the US Dollar has failed to sustain itself above the 21-DMA since early March. The Monday morning low aligned nicely with the median line of the channel discussed earlier that has provided trend- support in the current move.

Below the current 2016 low on Monday of 11,716, traders can look to the May 15 low of 11,634. You’ll also see on the first chart that US Dollar is resting on the floor of a 13-year channel support line. Given the environment, we see now, a break below the channel support line and May 2015 low at 11,634 appears to be the higher probability view as opposed to Dollar buying beginning aggressively.

Shorter-Term US Dollar Technical Levels

US DOLLAR Technical Analysis: Why You Should Watch This Opening Range

For those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours.

US DOLLAR Technical Analysis: Why You Should Watch This Opening Range

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

T.Y.

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