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US DOLLAR Technical Analysis: In The Shadow of 13-Month Support

US DOLLAR Technical Analysis: In The Shadow of 13-Month Support

Tyler Yell, CMT, Currency Strategist

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Talking Points:

  • US Dollar Technical Strategy: A Break Below 11,634 Could Bring an Unwind Effect
  • The Peers Are Gaining As The Dollar Is Fading
  • 12,000 Resistance Remains Important, Even As Price Pulls Away

After peaking in late January on the back of Negative Interest Rates being announced by the Bank of Japan, the US dollar has had a rough year. The year could get a lot worse for US dollar bulls if one looks at the charts to see what levels may soon break.

Recently, we have received rather dovish rhetoric from the Federal Reserve. First, it was believed that they were on the path of roughly two interest rate hikes in 2016 followed by a handful in 2017. As per the Fed funds futures, which prices in implied interest rates, we will now be surprised to see one in 2016. Additionally, many believed the US dollar would appreciate due to fear surrounding the European Referendum vote on June 23. Historically, the US dollar had acted as a haven type currency being a near proxy for Swiss and Yen.

The Fundamentals Are Revealing What the Technical Picture Has Been Showing

The chart above shows how aggressive the move lower has been since February. The Bearish channel (red) has done a fine job of framing price action. When combining the bearish price channel with the 200-Day Moving Average (12,025), you can begin to see that the path of least resistance appears lower.

The top line that we recently turned down from around 12,000 at the beginning of the month will continue to be resistance and only a break above this line would turn the technical view from bearish to neutral. Additionally, a breakthrough 12,000 could change the picture from neutral to bullish. Until this happens, given the dovish Federal Reserve mentioned above, small moves higher may provide a more attractive selling point as opposed to the first signs of the next Bull Run.

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June Support & Resistance Levels As of June 23, 2016

The opening range low is 11,798 while the opening range high is 11,998. These levels bracket sentiment perfectly as the key resistance we’ve been watching (highlighted on the chart above) is the 12,000 zone where we’ve seen many pivots since topping out in late January.

A swing trader could now use the opening range low as (11,798) as resistance though the volatility following the EU Referendum would make this resistance less trust-worthy. There appears to be significance around the 11,800 zone, which is ~61.8% of the May range and also the previous resistance of the corrective price channel (red) shown in the chart above.

As dire as the fundamental picture has become for the greenback regarding expected interest rate hikes (a fundamental driver of currency strength), a break above the 12,000 zone would turn all attention to further US Dollar upside.

Either way, given the event risk, we can expect whichever opening level range breakout we receive will bring out an aggressive follow through.

Shorter-Term US Dollar Technical Levels for Friday, June 23, 2016

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 of trading.

As a special warning, the EU referendum promises to bring volatility across the board. It is expected that markets could be illiquid as people shy away from the risks that bring with it volatility. Therefore, the diagram below has wider levels than usual to adjust for possible illiquid and volatile markets.

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