Potential Upward Pressure in the U.S. Dollar
Positioning against the dollar has become a common trade lately thanks to the Federal Reserve’s aggressive monetary stimulus. However, there are some signs of the trend running its course.
First, the U.S. Dollar Index made consecutive weekly lows around 92.55 at the end of July and the start of August. It tried to break under that level last week but quickly recovered. That could now turn into a false breakdown.
The daily chart also has some potential reversal patterns. First, MACD was rising when the lower low occurred on August 18: bullish divergence.
Second, DXY formed an outside day on August 21, followed by an inside day today. Both of those are potential reversal patterns.
Finally, we looked at TradeStation’s Commitment of Traders indicator on CME’s Euro futures. It shows that speculative net-long positioning recently hit record highs near 200,000 contracts.
This suggests frothiness in the euro, the largest pair versus the greenback in the dollar index. If it reverses lower, DXY would likely rebound. This could impact a wide range of assets, including precious metals, cryptocurrencies and global stocks.
In conclusion, lots of bearishness is priced into the greenback ahead of Jerome Powell’s speech on Thursday morning. Fed watchers expect an announcement on inflation targeting, but these chart patterns suggest the dovish news may already be priced in.
First, the U.S. Dollar Index made consecutive weekly lows around 92.55 at the end of July and the start of August. It tried to break under that level last week but quickly recovered. That could now turn into a false breakdown.
The daily chart also has some potential reversal patterns. First, MACD was rising when the lower low occurred on August 18: bullish divergence.
Second, DXY formed an outside day on August 21, followed by an inside day today. Both of those are potential reversal patterns.
Finally, we looked at TradeStation’s Commitment of Traders indicator on CME’s Euro futures. It shows that speculative net-long positioning recently hit record highs near 200,000 contracts.
This suggests frothiness in the euro, the largest pair versus the greenback in the dollar index. If it reverses lower, DXY would likely rebound. This could impact a wide range of assets, including precious metals, cryptocurrencies and global stocks.
In conclusion, lots of bearishness is priced into the greenback ahead of Jerome Powell’s speech on Thursday morning. Fed watchers expect an announcement on inflation targeting, but these chart patterns suggest the dovish news may already be priced in.
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