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Talking Points:

Another year, another disappointing start to the DXY. Much like in January 2016 after the Federal Reserve raised the reference rate the month prior for the first time since 2006, the USD is not providing the follow through that many had hoped would come through. Now, looking at the options market for sentiment clues and the charts, it’s fair to say the DXY stands on a medium term brink of decisiveness worth watching.

Traders hoping for a turn-around in USD are likely better positioned by taking a short-EM view as opposed to DM FX given the recent catalyst and potential catalysts for varying DM currencies like JPY, EUR, & GBP. Of course, DXY has a heavy weighting towards DM currencies with the heaviest weighting favoring EUR direction.

On the chart, the key points worth watching on the downside is the YTD low at 98.86, which aligns with the Trendline seen on the chart is below drawn off the May low. Beyond the May Trendline, we could see a move toward the multiple 100% extensions (ABC moves lower) between 97.95/66 that could still indicate a deep pullback in a longer-term uptrend, a view many traders still hold.

If the price breaks the May Trendline as well as the confluence of 100% extension in the upper half of 97, we could begin to see the unraveling of sentiment for longer-term Bulls. In the options market, we continue to see medium term (3-month) outlooks deteriorate. Per Bloomberg, the weighted 3-month 25-delta risk reversal currently shows the smallest premium for calls relative to puts at 60bps since August 2016.

We would likely need to see a close above the confluence of resistance at 101 to expect to see the Bulls rush in. Until then, we’ll follow the yields and look for a move lower in DXY.

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Dollar Bulls See Pressure From All Sides As Confidence Erodes

Chart Created by Tyler Yell, CMT

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Shorter-Term DXY Technical Levels: Wednesday, April 19, 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.

Dollar Bulls See Pressure From All Sides As Confidence Erodes

Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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