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Dollar Index Bottoming?

Marc Chandler profile picture
Marc Chandler


  • Downside momentum is fading and technicals are showing a bullish divergence.
  • The Dollar Index has not met the minimum corrective retracement target, meaning that it is premature to talk about bear market.
  • We identify two pre-conditions to enter trade.

The Dollar Index set the year's high on January 3 a little above 103.20. Today, it made a marginal new low for the year at 95.464. The previous low, set at the end of last month was 95.47.

As this Great Graphic from Bloomberg illustrates the down trend is very much intact (white line) and has accelerated since the last three months (steeper red line). The 2016 low was set in early May a little below 92.00.

The Dollar Index took a little more than six months to unwind the gains it scored between the US election last November and January 3. There have been several points along the way that looked like a possible turning point. Another such window appears to be opening soon. Here is why:

The marginal new lows were not confirmed by technical indicators. In the chart above, we added the MACDs. It made its lows near the middle of May. This is what technicians call a bullish divergence, and it is found with other technical indicators as well.

In addition to the technical consideration, the two-year differential bottomed in late June a little above the April and May lows near 1.92%. It is now near 1.97%. A key level on the upside is 2.02%. On the other hand, the 10-year interest rate differential recorded new lows for the year yesterday near 1.72%. It finished last month a dozen basis points higher. The low from last November was near 1.65%. The low from last year was nearer 1.48%.

In 2013 and 2014, the Dollar Index carved out a low a little below 79.00. The first leg up was from mid-2015 through early 2015, peaking near 100.00. It made a new high in late 2015, around the time of the Fed's first hike but stalled near 100.50. The second leg up

This article was written by

Marc Chandler profile picture
Marc Chandler has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. In 2009 Chandler was named a Business Visionary by Forbes. Marc's commentary can be found at his blog (www.marctomarket.com) and twitter www.twitter.com/marcmakingsense

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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