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Dollar Technical Analysis: DXY Sitting At Trend Support

Dollar Technical Analysis: DXY Sitting At Trend Support

2017-01-10 18:45:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

The Dollar Index remains out of short-term favor in the second week of trading for 2017 as shown by price pushing towards the January 5 low of 101.30. A key theme we’ve been watching that has provided a leading indication of currency strength and weakness have been sovereign yield spreads.

We’ve recently seen a pull-back in U.S. Treasury yields, which has narrowed the sovereign spread, which has provided support for DXY counterparts. For die-hard fans of Ichimoku, the UST 2yr Yield has broken below the 4-hr cloud, which could be indicative of falling bullish momentum as yields move higher on the anticipated hawkish action from the Fed. There is often a very similar price pattern in USD/JPY and UST 2yr Yield patterns, and USD/JPY has also shown a reason for concern.

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The chart below shows a retracement from an over-cooked DXY that was trading briefly above the price channel has now moved back to the channel median line. There has been a disappointing follow-through following Friday’s payroll numbers, which seems to favor further downside as positioning was rather heavily stretched going into the announcement.

The market appears to be well bracketed to help show traders where the path of least resistance lies given the fundamental backdrop. A break below the January 5 low would indicate a sharper drop to the December 14 (FOMC day) low of 100.73 or possibly the December low of 99.43 could be in the works.

However, a break above the two immediate forms of resistance at 102.52 would turn attention to the prior heavy resistance at 103.20 where price failed to extend despite the encouraging data and even more hawkish Fed than anticipated. A failure for the price to take over resistance would keep attention on the RSI(5) divergence that favored a further pullback.

D1 Chart Shows DXY Sitting At Support After Overshooting Strong Bullish Channel

Dollar Technical Analysis: DXY Sitting At Trend Support

Shorter-Term DXY Technical Levels for Tuesday, January 10, 2017

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.

Dollar Technical Analysis: DXY Sitting At Trend Support

T.Y.

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