Outlook for the US dollar
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.
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.
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.
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.
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.
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.
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.
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.
Holding below the 38.2% Fibonacci level of 106.64 keeps the outlook negative.
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.
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.
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.
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.
Technical Analyst & Trader
The content of this article is the personal opinion of the author and not Intertrader. You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.