President Trump Gave The U.S. Dollar A Shove In The Right Direction

|
About: Invesco DB USD Bullish ETF (UUP), Includes: UDN, USDU
by: Sandeep Singh Ahluwalia
Summary

The U.S. Dollar ascended after my November article predicted it would.

U.S. President Donald Trump and Chinese President Xi Jinping have agreed to halt the imposition of fresh tariffs for 90 days.

The U.S. 30-year fixed rate loan remained unchanged at 4.81%.

I am leaning towards the U.S. Dollar bulls being in the driver's seat.

In my last article on 19th November, I was bullish on the U.S. Dollar (UUP) as I expected it would commence an ascent in the coming one to two sessions. This did occur as the Greenback rose till the 61.8% fibonacci resistance level at 97.09. Moreover, once it ascended to the projected level, the U.S. Dollar commenced a sideways pattern as expected. However, I now believe the U.S. Dollar Index will commence a fresh bullish ascent till the range between 97.547 and 97.974. Hence, to establish the likelihood of this occurring, I will look at the fundamental news affecting the index, whilst, also analyzing the charts using technical analysis tools.

Fundamental news:

Trade war:

The trade war situation has improved as U.S. President Donald Trump and Chinese President Xi Jinping have agreed to halt the imposition of fresh tariffs for ninety days. Moreover, President Trump also agreed that the United States will not increase the current 10% tariff on $200 billion worth of Chinese goods to 25% as was planned on 1st January 2019. This is extremely good news for the U.S. Dollar and the global financial markets as it eases the pressure on the bulls. I say that as a 25% tariff would have had a drag of 0.9% on China’s GDP growth, which would have proved costly to the world’s financial markets. However, the bearish tinkle is still there as the 10% tariff should have a 0.5% drag on China’s GDP.

U.S. Mortgage rates:

30-Year Fixed Rate Mortgage Average in the United States U.S. mortgage rates in the week ending on 29th November stayed unchanged. This is as the '30-year fixed rate loan' came in at 4.81%, which is the same as the prior week’s value. I expect this to give a boost to the U.S. Dollar in the coming days, as it should cause an increase in mortgage applications, bringing some stability into the mortgage sector. Moreover, this in turn should help improve the string of weak housing sector numbers seen in past weeks. I say that as in October new home sales tumbled by a whopping 8.9%, due to an upward trend seen in mortgage rates throughout the summer till late October. Any stability in mortgage rates will provide confidence to new home buyers, which in turn will cause the Greenback to have a bullish ascent.

Brexit:

I expect Brexit to benefit the U.S. Dollar in the coming days. On December 11th, the British Parliament will be deciding on the European Union divorce deal. Thus, this will increase the stress level on the British Pound which should result in the buying interest of the U.S. Dollar regaining momentum. Thus, I believe investors will put a fresh bid for the Greenback as it is seen as a safe-haven currency.

Technical analysis:

Daily chart:

U.S. Dollar daily chart The pair’s daily chart indicates that the U.S. Dollar Index will have a bullish run. I say this due to the formation of a ‘Rising Three Methods’ candle pattern. This candle pattern is similar to a western bull flag, which shows that a resting period is occurring before the price continues in the direction of the first candle. Moreover, the candle pattern has formed within an uptrend which signals to investors that the bullish run will be continuing. Furthermore, the bulls have received an additional confirmation as the prior five candles have taken support from the 20-day moving average. This confirms my belief that the U.S Dollar Index will be rising.

On the price target front, I expect the U.S. Dollar to rise till the range between the 78.6% and 100% fibonacci resistance levels. The 78.6% fibonacci resistance level is at 95.547, while the 100% fibonacci resistance level is at 97.974. However, if the U.S. Dollar does breach the 100% fibonacci resistance level, then I do not expect the rise to go beyond the 127.2% fibonacci resistance level at 98.517.

On the indicator facet, the RSI of the U.S. Dollar Index has commenced a sharp ascent which has resulted in it breaking above the 60 mark. This supports my notion that the Greenback will be rising till the range between the 78.6% and 100% fibonacci resistance levels. Furthermore, the ADX shows that the bullish rally is robust in nature.

Weekly chart:

U.S. Dollar weekly chart The U.S. Dollar’s weekly chart indicates that the bulls have gained an upper hand over the bears. The Greenback has formed a ‘Bull Separating Line’ candle pattern. This pattern psychology indicates to investors that the command of the market has shifted from the bears to the bulls. Moreover, the candle pattern has broken above the long-term resistance level at 96.812. This reinforces the notion that the Greenback is all set for a bullish ascent. Lastly, the lagging line is about to breakout above the Ichimoku cloud pattern which indicates that the bullish trend is robust.

The big picture:

Overall, I am leaning towards the bulls pushing the value of the U.S. Dollar Index till the range between 97.547 and 97.974. This is driven by the fact that the fundamentals and technicals support an ascent in the currency’s value till that point. However, whichever way you do decide to trade, do ensure that you utilize trailing stops, as this shall aid in capital preservation.

Good luck trading.

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.