Greenback on the skids?

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This post is for education purposes only and should not be interpreted as a trade recommendation.

Weakness in the U.S. dollar has been one of the top trends in the last year. Now might be the time to revisit it.

After all, the greenback has steadily lost value since rolling over at a 13-year high in late 2016 and has risen in just four of the last 14 months. We outlined some bearish technicals on the chart in early March, and so far those patterns have remained in effect.

At that time, there was a bearish engulfing candle and resistance at the falling 50-day moving average. The U.S. dollar index (@DX) has drifted ever since and yesterday closed back below that 50-day moving average. Is another leg down coming?

Traders may find out as soon as today because some catalysts are coming. The first item comes early when European Central Bank President Mario Draghi speaks to students in Frankfurt. Then at 8:30 a.m. ET, U.S. consumer prices are due. Minutes from the last Federal Reserve meeting follow at 2 p.m.

U.S. dollar index (@DX)
U.S. dollar index (@DX)

There’s no reason to expect anything huge in terms of news from any of those events. The bigger story could simply be trend following, with traders looking for continuation of the longer-term direction after the uncertainties pass.

Then there’s the euro, whose U.S. dollar futures use the the symbol @EC on the TradeStation platform. The common currency has been rising against others like the Japanese yen Swiss franc recently, both of which are considered “safe havens.” If that strength spreads to the EURUSD pair (which is tracked by @EC), it would translate into broader weakness for @DX.

On top of that, China’s move to open its markets yesterday could was viewed by some as evidence Beijing won’t devalue the yuan as a bargaining chip against Washington… one less argument in favor of the greenback moving higher.

Translation of all the forex mumbo jumbo? We could be setting up for the next leg down in the U.S. dollar. That could be a boon to global stocks, emerging markets, metals and energy. It may even boost technology companies that do a lot of business overseas.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.