Outlook for the US dollar


Jason Sen

The US Dollar Index has been in a very clear downward trend since the peak of 103.8, reached on the third day of 2017. This bear trend has wiped over 25.5 points or 15% from the index in the last 13 months. Since mid-January, the index has traded in a mostly sideways direction in what is likely to be a consolidation phase.

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The monthly chart below shows the index landed bang on the 50% Fibonacci support at 88.25 (also the exact low of the decline set in February). Note how the red 200-month moving average intersects at exactly the same price, offering an extra level of support.

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If you look at the daily chart again, you can see the one-year downward-sloping trendline providing resistance below 91.00. So bulls will need a sustained break above this level if they are to start to take control. A buy signal would be confirmed with a move above the blue 100-day moving average, which is also sloping downward but hovering around 40 points above the trendline.

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The EUR/USD chart is looking like a mirror image of the index. The daily chart below shows a 15-month trendline dating back to the peak in November 2016, with a sideways trend since mid-January.

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The monthly chart shows a confluence of resistance from the 38.2% Fibonacci level of 1.2516 up to the short-term, 61.8% Fibonacci resistance at 1.2601. Note the additional 100-week moving average in this resistance area, with the red 200-month moving average easing its way towards a meeting with the 100-month.

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In February this heavy barrier overwhelmed the market and sent the pair tumbling by over 350 pips. Throughout March, we have made a slow recovery reaching 1.2462. For the dollar to weaken further we are going to have to make a decisive move through the 1.2600 area.

A glance back at the daily chart shows good support from the 11-month trendline and short-term Fibonacci levels around 1.2235/1.2215. A break below 1.2200 therefore acts as a bearish confirmation, proving that the resistance we see on the monthly chart has triggered a resumption of the 10-year bear trend.

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USD/JPY spent the whole of 2017 trending sideways. We broke out of the sideways channel to the downside in February of this year, reaching 105.52 before a bounce in the third week of February fell short of a re-test of the lower trendline of the channel. Since then, the pair has been trending steadily lower.

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The weekly chart below shows a more significant break to the downside. A five-year trendline was also broken in February for a more important negative signal. The break of this triangle is likely to take the pair back down towards the 2016 lows of 100.07/99.08.

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Holding below the 38.2% Fibonacci level of 106.64 keeps the outlook negative.

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The monthly chart above shows USD/JPY testing the only support of any relevance: the 200-month moving average at around 105.70. A break below the current low of 104.55 is confirmation of a move towards the 2016 lows of 100.07/99.08 and the blue 100-month moving average line in the same area.

USD/CAD has been trading in a gently downward-sloping channel for two years, as you can see in the daily chart below.

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We topped almost exactly at the 61.8% Fibonacci resistance of 1.3130 in March, unable to test more powerful resistance from the 26-month trendline at 1.3190. A break below short-term support around the 1.2800 area targets 100 and 200-day moving averages in the 1.2680/1.2650 area.

AUD/USD has recovered in a gently upward-sloping channel for over two years. See the weekly chart below. We should find strong support at 0.7635/0.7615.

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For GBP/USD a minor correction in February held the first 23.6% Fibonacci support of 1.3661 (we bottomed 50 pips above). We then pushed back up to the 200-week moving average resistance at 1.4270/1.4280.

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There’s strong resistance from here up to the recovery peak of 1.4344. So bulls will need to sustain a break above here to commence the next leg higher in the recovery. This move would target 1.4515, 1.4575 and 1.4660, perhaps as far as 1.4740/1.4770 before that Brexit vote peak of 1.5018.

Jason Sen

Technical Analyst & Trader

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