US dollar buy signal: significant move expected


Jason Sen

The US Dollar Index has clearly broken higher for a longer-term buy signal and what should be the start of a bull trend. After three months of trending sideways we could expect significant gains. This is all the more interesting as I understand there are large speculative short positions.

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The move may have been triggered by the latest move higher in US bond yields as the 10-Year T-Note breaks the 34-year bull trendline. This is an important negative signal for the bond. It signals that significantly higher yields are likely to be seen in the weeks ahead.

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EUR/USD made a clear break of 13-month trendline support at 1.2320/10. This acts a sell signal and we headed lower yesterday, targeting the next support at 1.2210/00. This is the last line of defence for bulls: you can see the blue 100-day moving average line holding in the daily chart below. But I think it will give way sooner rather than later.

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This negative breakout is interesting because I understand there are record speculative long positions. This could cause a significant collapse as they stampede towards the exit. Perhaps the weekly chart below shows the breakout to the downside more clearly.

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A break below 1.2190 is an important longer-term sell signal confirmation. Short positions are expected to work as we initially target 1.2155/50, 1.2100/90 and support at 1.2040/30. We expect to see a bounce from here initially in oversold conditions. But a break lower eventually will act as another longer-term sell signal, targeting 1.1910/00 and 1.1840/30.

GBP/USD broke four-month trendline support at 1.3990/80 for a sell signal. Minor Fibonacci support at 1.3930 is just holding as I write. Long positions are probably too risky, and a move below here targets 100-day moving average support at 1.3860/50. This may hold initially in oversold conditions, but a break lower eventually targets 1.3824/20 and 1.3790/80 before the March low at 1.3720/10.

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AUD/USD has broken important 500-day moving average, two-year trendline and Fibonacci support at 0.7640/0.7630 for an important longer-term sell signal. Short positions can target 0.7550, 0.7530 and 0.7485/80 on the first leg lower. A break below here targets 0.7410, 0.7370 and 0.7330/20.

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USD/JPY beat Fibonacci resistance at 107.80/90, hitting the next targets of 108.40/45 and 108.75/80 before minor 100-day moving average resistance at 108.95/109.00. We are pausing here as I write this morning. A break above 109.10, however, would keep bulls in control for a test of the 500-day moving average at 109.50/60. Further gains test the February high and 200-day moving average at 110.30/47.

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NZD/USD breaking below the two-month trendline and 500-day moving average at 0.7140/30 is a sell signal, targeting 0.7110/06, 0.7075/70 and minor support at 0.7030. Once this is broken we look for 0.6980 and 0.6920.

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We called a top for the E-mini S&P and E-mini Dow Jones last week. This does appear to be playing out as expected, although we have not fallen significantly. Perhaps a stronger US dollar and higher US yields will trigger a more significant move to the downside in the days and weeks ahead.

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The weekly S&P chart above shows a clear rejection of longer-term trendline resistance. This should be the start of a bear trend, or at least a meaningful correction.

Jason Sen

Technical Analyst & Trader

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