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Global Trade Desk- Diluted Dollar Desire

Daily Client Note

Currency and Dollar Index Review


Diluted Dollar Desire

Quick-View:
The latest signal on dollar index trade (DXY) (75.50) was generated on Jun 10 11 with a break of 74.50 resistance, going long. The upside move has completed its near-term cycle that hit a target at 76.50. The breakout move has also completed a near-term three wave reversal that looks to have good support between 74.50 and 75.50.

The mid-term trend has moved from short to neutral, and is allowing a base to form at 74.50 that will be extremely difficult to break below  if global equity markets hold S&P 500 futures trade below 1295 resistance. Now will be the time to look to buy the dips that test support on DXY in the near-term at 74.50, and to be prepared to close out at near-term targets, including 76.00 and 76.50.

Trade desk Outlook:
The trade desk has been calling for the building of long-dollar positions in the near-term. At this stage it would seem that dollar valuations hinge on where S&P 500 trade decides to settle. The dollar is not being bought from a desire to be long the US economic growth story, it is being bought as an automated hedge against falling equity valuations.

Clients will be notified via trade signals and market alerts when price action breaks and holds, and sets up the next long-dollar trade signals. Right now, the call is for a consolidation of USD buying that finds support, and then break higher if equity indices sell S&P 500 futures trade below 1265.

Headlines:
A very quiet start to the week’s news wires will allow sentiment to reveal where the next market momentum will push USD valuations. The economic reporting docket is slow this week.

Technical Outlook:

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Dollar Index 4 Hour Chart:
Trading at the Apr 18 11 and May 13 11 swing point high. 100-day SMA at 76.00 (orange line) resistance. Trend-line support (red line) is at 75.40. No long-term buying signals will form until a weekly chart can close above 76.80.

ABC potential:
Completed the A leg higher from 73.50 to 75.50. B leg lower tested 74.60. C leg hit the  76.50 target. In the process of completing the three-wave move that will test the strength of support.

Call to action:
Near-term 8-hour trades have the most potential to follow through, until the 74.50 and 76.50 channel is broken on a weekly chart close.

Support and Resistance:
Strong buying activity was seen at 74.00 on DXY trade in April and May. This reversal support area will be closely monitored now that it has been broken as resistance. Market alerts will be sent to clients if there is a sustainable bounce off 75.40 support on Monday that highlights a USD buying opportunity. Previous price action at these dollar index levels have been choppy, overlapping, and very volatile, but have resulted in mid-term USD buying.

Main DXY support: 72.50 and 74.00. Main DXY resistance: 76.50 and 78.00.

Technical Correlations:
Daily trading range on DXY is 40 ticks, which is below the near-term reads and indicates low speculative interest. 50-day Simple Moving Average (NYSE:SMA) on DXY is @ 75.00 100-day SMA is at 76.00. DXY price action has a 36-month 75% inverse correlation to crude oil and SPY moves, and an 80% inverse correlation to euro (Eur/Usd) currency moves.

Global Forex Order Flows:
It is generally accepted that forex trade will follow, not lead, global market momentum. Price action in global trade at this point in time is very mixed, but favoring short-equity moves, with consolidation and in commodity trade, and potential buying of the dollar.

The Bank for International Settlement data below reveals that the forex market will remain contained in tight ranges from 10:00 ET until at least 20:00 ET most days, because of the weak order flows going through the US session. It also reveals why the European futures market open, from around 02:00 ET through until the Chicago reversal at 07:00 ET are the main times to expect sustainable moves. Europe dominates forex flows in the same way that the US dominates bond and equity flows.

U.K. and Euro-zone 53% (01:00 ET-11:00ET). Asia 21%. (18:00 ET-03:00 ET). U.S. 16% (07:00 ET-16:00ET). Other 10%.