Talking Points:
- US Dollar Technical Strategy: So Close, Yet So Far From A Significant Break
- What Appears To Be A Missing Ingredient For a Breakout
- What Components of the US Dollar Index To Watch?
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Volatility is in a bear market, and that’s typically not a good sign for the US Dollar. This morning, the average 1-Month Implied Volatility for G8 FX fell to its lowest levels since early January 2015 before the SNB pulled their peg against the Euro that wreaked havoc on many. When looking at fundamental readings like NFP, The US Dollar has had the fundamental backdrop for a breakout THAT even the most optimistic US Dollar Bulls should be thankful.
However, the US Dollar has failed to make significant headway. A lack of upside appears worrisome because what the market is not doing can be as significant (if not more so) than what is doing because investors, therefore, do not see the value in bidding up an asset with an ideal fundamental backdrop.
18-Month USDOLLAR Index Chart / Bearish Channel Holding
The 12,000/100 zone that we’ve long watched continues to be a foe to USDollar Bulls. Such resistance does not mean they should give up, but if resistance holds them back again, it’s fair to say that the US Dollar time to shine may still be further away than many anticipated with recent NFPs.
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Of the four counterparts for the US Dollar of the EUR, GBP, JPY, & AUD, the JPY & AUD have been resilient and have proven to be a better purchase over the US Dollar. The JPY initially strengthened to 98.77 on the Brexit confirmation but has since oscillated around 102 JPY per USD.
If the US Dollar cannot find lift-off here, it’s tough to imagine the scenario that it will. Thankfully, we can look to the charts for guidance from here.
The Fundamentals And Technical Picture May Be Aligning to US Dollar Strength
The technical picture on the USDollar charts shows resilience this summer. Currently, we have resistance at 12,100 (late-July closing high). Unfortunately for Bulls, the opening range breakout reversed, which puts the burden of proof on the Bulls and places the path of least resistance lower.
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The Bearish channel (red) has done a fine job of framing price action. L added a few extensions drawn off the slope of the median line that also did a good job of acting as support pre-Brexit. However, before buying, we must await a breakout before we celebrate the strength of the US Dollar and only a break above the ~12,100 resistance would turn the favor toward the Bulls well into Q3.
Shorter-Term US Dollar Technical Levels for Tuesday, August 9, 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.
T.Y.
