Talking Points:
- US Dollar Technical Strategy: Are the Bears Exhausted And Bulls Rejuvenated?
- US Dollar Moved Cleanly Through 21-DMA, Prior Resistance on Move Lower
- Opening Range Breakout Would Offer Enticing Value Breakout/ Buy
US Dollar Bears have a right to be worried, as a relatively weak-Non-Farm Payroll on Friday didn’t slow down the US Dollar bid. Last week, the US Dollar capped off its best week since early November. The Dollar downtrend has had a lot of fans including hedge funds who have sold the USD aggressively after the March & April FOMC meetings, but the recent rebound may cause institutional speculators to cover their short positions that could make the rebound more aggressive than many expect.
If US Dollar is taking cues from 2015, then US Dollar Bulls have many reasons to be encouraged. After a rough April, May started off and ended very strong, and that trend continued until January 29. The interesting disparity of the Fed & Market in 2016 shows that a strong snap –back higher should be watched for, especially after New York Fed President William Dudley told the New York Times after the rather disappointing Non-Farm Payroll that two rate hikes this year remain a “reasonable expectation.” Whether this comes true or not is hard to tell, but if it does, it will mark a potential double bottom off the May 15, 2015, price range.
We’ve Just Bounced Aggressively From the May 2015 Low-Day Price Range
The above chart shows a little over a year’s worth of price data on the US Dollar Index. One of the valuable technical tricks I’ve picked up over the years was to keep an eye on the price range of an extreme day for a potential pivot in price. The bottom rectangle shows the price range for the May 2015 low, with a price low of 11,634. Looking to the far right of the chart, you’ll see that we came to that price range while within the corrective channel (red) and then aggressively move higher by ~2% or ~230 points on the index.
While the US Dollar remains hotly contested as to where it will end the year, with Hedge Funds still favoring lower, a retracement could favor a longer-term floor is being tested a move higher may be building steam. The chart below shows a Multi-Year Polarity Point where the Dollar has either stopped advancing or declining over the scope of many years. If a potential floor is in place, a move back toward the prior high could have May 2016 picking up where May 2015 left off.
Long-Term USDollar Chart Showing Multi-Year Polarity Point
Shorter-Term US Dollar Chart Favors Focus on April Pivots of 11,953 & 11,907
In the chart above, you’ll note that the top line of the short-term bearish (red) channel was recently broken. Today’s move was the first touch since the late-February high where the channel was originated. The upper channel line aligned with the 21-DMA around 11,847, and now that level has given way; attention turns to the lower-highs of April at 11,953 & 11,907.
As of mid-day Monday, the price high is 11,906. Recently, we spoke about the significance of an opening range breakout for the month of May. Now, the rally above the 21-DMA may be the first significant bull move as the price of the USDollar had failed to sustain itself above the 21-DMA since early March. The Friday/ NFP-day morning low of 11,807 aligned nicely with prior resistance and can now be looked to as short-term support in the current move alongside the 21-DMA at 11,830.
Below the NFP-low of 11,807, the current 2016 low on May 3 of 11,672 can be used as major support. Naturally, below both of these levels, the May 15 low of last year of 11,634 would take on significance. Lastly, you’ll note that we’ve been able to compile the Speculative Sentiment Index for the composite US Dollar. The SSI currently shows a percentage long decrease as the pair moves higher. Should we move into the net-negative territory, it would be helpful to remember that we use our SSI as a contrarian indicator to price action, and the fact that the majority of traders would be short gives a signal that the US DOLLAR may continue higher. This has yet to trigger, but it’s worth watching.
Shorter-Term US Dollar Technical Levels
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.
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T.Y.
