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US Dollar Breaks Down

Technicals | Nov 29 2017

Bottom Line 28/11/17

Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 92.00 – 93.00 / 87.83 / 84.75
Resistance Levels: 95.88 / 96.51 / 97.87

Technical Discussion

The U.S Dollar Index (DXY) launched in March 1973 at a price of 100.00 and is a measure of the value of the Greenback relative to a basket of currencies commonly referred to as America's major trading partners. It is a weighted measure using the currencies movements against these other currencies, with the heaviest weighting by far being against the Euro at 57.6% . Some other currencies in the mix are the Japanese Yen (13.6%), Canadian Dollar (9.1%), Swedish Krona (4.2%) and the Swiss Franc (3.6%). Outside alterations to the weightings being made in 1999 when the Euro replaced a number of European currencies, they haven't really changed too much since even though China, Mexico and South Korea would now be considered more important trading partners to the U.S than Sweden and Switzerland.

Reasons to remain neutral below 104.00:
→ another interest rate hike still flagged for December 2017 
→ unemployment in check and lowering
→ bigger picture outlook remains positive above 84.65
→ Elliott Wave count looking for a deeper retracement medium term

'The typical 50.0% – 61.8% retracement zone off the larger run higher up to 104.00 resistance is still in play circa 88.31 and 84.65 respectively …..'  Price patterns are continuing to back a move into these deeper end targets, even more so since our last review with the shorter term bullish reverse head and shoulders pattern now having officially failed. We on occasion talk about bullish and bearish continuation patterns depending on the type of pattern being observed, and the prevailing trend that is in play. In regards to the U.S dollar the trend is clearly to the downside, yet whether it was going to continue in this vain short to medium term was all about how the proposed reverse and head shoulders was going to perform.

We now know that the pattern has failed with price getting no where near the upside target post breakout, and now that the right shoulder circa 92.74 has been broken below, this does tend to set the scene for further moves to the downside with the 92.00 – 93.00 support zone likely to come under extreme pressure over the coming weeks. And if our wave count is correct in regards to a 5-wave move being needed to complete this medium term downward spiral, then 92.00 – 93.00 support will in fact be broken below. Interesting to note as well that the Wave-4 as labelled on our chart rejected pretty much to the tick at 95.15 which was a 38.2% retracement that is typified by Wave-4's. So this again backs the need for a 5-wave move being required before price can finally lock in a major low point. 

Trading Strategy

In our last review we considered taking the shorter term trade on the long side in anticipation of a move up towards 97.00 as part of the pattern breakout higher. Yet with the bearish divergence in play at the time we decided to wait to see if we would be granted a positive neckline retest, and if we did we were then going to consider trading the Index long. As has been clearly revealed now though, the neckline retest failed, the right shoulder has been broken below as of last night, and all of this in combination has now set the scene for the trend to resume to the downside. We are not going to make a formal recommendation, yet if you are looking for a trade, short selling the DXY Index below 92.67 would be a valid strategy based on the analysis, with stops placed above 94.17. It's only a short term opportunity yet an opportunity all the same to profit from.  
 

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Risk Disclosure Statement

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