US Dollar: Up, Up, and Away?
Matt Weller, CFA, CMT August 14, 2018 3:12 PM
The latest outbreak of volatility in Turkey has been a headache for many assets, but it’s been an absolute boon for the US dollar.
Until Friday, the world’s reserve currency had spent the last three months consolidating in a sideways range below 95.50 as traders weighed the long-term uptrend against the potential for the greenback’s interest rate advantage against its rivals to peak (see “The Long View: When will traders jump off the bullish dollar trend?” for more). With the recent “safe haven” bid, the US dollar index has broken out to a new 1-year high above 96.00.
Technically speaking, the dollar index formed a clear “ascending triangle” pattern through May, June and July. The bullish breakout from that pattern, in-line with the recent uptrend, suggests that rates may have further to rally in the days and weeks to come.
Other technical indicators are supportive of continued gains as well. The 50-day moving average continues to trend higher and has provided consistent support for the index over the last couple of months. Meanwhile, the RSI indicator continues to trend higher, and despite the recent rally, is not yet in overbought territory. As always, it’s worth noting that an overbought reading in an oscillator is not uncommon in a bullish trend. In fact, shorter-term trend traders would rather see the RSI continue to oscillate in and out of overbought territory rather than drop to oversold levels, which could indicate an end to the near-term uptrend.
Looking ahead, the next level of resistance in the dollar index comes in closer to 98.00, where the 61.8% Fibonacci retracement of 2017’s big drop and the high from last June converge. Of course, traders will also want to keep a close eye on support and resistance levels in EUR/USD itself (which makes up the majority of the index) to gauge the strength of the dollar’s trend; the equivalent level in that pair comes in around 1.12. Previous resistance in the 95.00-50 zone may provide support on any near-term dips moving forward.
Source: Stockcharts.com, FOREX.com
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.