The US Dollar Index finished yesterday below the key 98 level we referenced back in our post from March 16th – the takeaway paragraphs from that post are pasted directly below along with the link to the full report. At the bottom of this post is an updated monthly chart of the Index through last night (4/17/2017). This is a key long-term level – US Dollar bulls need to defend this level very quickly.
With the Fed in the initial phases of a tightening cycle, Trump implementing protectionist policies and championing a strong dollar stance, and anti-EU political fever in Europe threatening to torpedo the Euro, it would seem unthinkable to back off a bullish dollar position. And to that point, an informal read of sentiment on my part reveals an almost religious belief in the bull run continuing. It’s hard to argue any of the fundamental points but like any market, in the end, it’s a game of positioning. Sometimes we have to take a step back and see what price is telling us, and what we know after looking at this Dollar chart is there is some real vulnerability here.
Could we make another high (above 103.82), yes. To that end, the dollar has weakened fairly substantially since the ECB rate comments last week and may be due for a short-term bounce. That said, I think the bigger, long-term risk is to the downside. Keep in mind we’re working with a monthly time frame so we are not focusing here on 3-5% moves but those 5%+ moves that have real impact on portfolios and markets.
100.00 (+/- 20 cents), for reasons other than a round number/psychological barrier, is going to be pretty important near term (currently trading 100.22). I think if it has trouble holding that level we see a test of the 98 level which is where it should hold if it’s going to avoid breaking down. Again, this is a longer-term vista so these price levels could take some time to play out even though they are not too far from current levels.
Remember, IF we do get that downturn, the ripple effects may be very pronounced given the Dollar’s reserve currency role in pricing a multitude of financial and physical assets and heavily impacting export-based economies. And finally, remember the stock market also dislikes changes in the direction of the dollar.
Please see the disclaimers and disclosures at the bottom of the webpage. We currently have no positions in the US Dollar Index but still reserve the right to enter or exit a position at any time. We analyze markets on many different time frames and may be bullish/have a long position short-term in a market that we are bearish on long-term (and vice versa). The information in this report is not intended to be, and shall not constitute, an offer to sell or a solicitation of an offer to buy/sell any security or commodity investment product or service. It should not be assumed that Synchronicity’s methods as presented will be profitable or that they will not result in losses. The indicators and strategies are provided for informational and educational purposes only and should not be construed as investment advice. Accordingly, you should not rely solely on the information in making any investment.
The information contained herein is based on data obtained from recognized statistical services and other sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to its accuracy or completeness. Any statements non-factual in nature constitute only current opinions, which are subject to change.