Daily Client Note
Currency and Dollar Index Review
Buy USD at Support
The dollar index (DXY) (75.50) has already battled resistance at 75.90 this week and reversed to support around 74,90, just as recent Client Notes suggested it would. The 75.00 DXY area will be hard to break if equity markets continue to reverse S&P 500 valuations through 1270 support, after failing to hold above 1290 résistance just as recent Client Notes suggested it would. Major currencies have been in a six-session sideways crawl against the USD that will now see dollar buying if equities drop lower.
The mid-term DXY trend has moved from short to neutral, and will move to long if a Weekly chart can close out above 76.00. Trade signals have been sent to clients to buy the dips that test support on the dollar, and to ride out the volatility that will come when 76.00 and 76.50 are tested. There will be plenty of trade opportunities over the next two weeks of trade.
All attention was focused on the Federal Open Market Committee interest rate statement and FOMC Press Conference, and as expected the equity markets were sold and the dollar was bought in-line with a boring diatribe regarding slow growth and lackluster economic outlooks. The Q&A session seemed to once again be rigged with pre-determined questions and answers that the local Elementary School debating team could do a better job of facilitating.
Where To Now For DXY?:
• Generated a near-term buy signal on June 22 11 with a break above 75.40 that targets 75.90 and 76.25
• In a mixed momentum cycle that will not generate major buying sentiment and volume until a Weekly chart can close above 76.50
• Downside targets will include 74.90 if S&P 500 trade closes a Weekly chart above 1290
• Expect downside tests of 74.90 support to hold steady in the current weak-equity environment
• Low-volume ramps are hitting the currency markets in spasms which have not been able to generate substantial near-term moves, but that may be changing
• This review of technical sentiment is signaling to buy the dollar index on any downside tests of support, and detail of such moves will be emailed directly to clients in real-time
Dollar Index Correlations:
Daily trading range on DXY is 60 ticks, which is building in strength and indicates institutional interest in generating a support base. The 50-day Simple Moving Average (NYSE:SMA) on DXY is @ 74.80, the 100-day SMA is at 75.80. 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.
Last three months of potential currency trade signals have generated 69 trades, 47 of which have completed, that covered 180 points (1800 pips) of overall movement. The misses have come on days that instant volatility hit the global markets in reaction to breaking news headlines. Most signals have been generated from 1-hour chart algorithms.
Trade desk Outlook:
The trade desk has been calling for the building of mid-term long-dollar positions if global equity trade failed to break and hold resistance. At this stage it would seem that dollar valuations hinge on where S&P 500 markets decide to settle. Short equities equate to long dollars, and vice versa. 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 real-time trade signals and market alerts when price action breaks and holds, and sets up the next dollar index trade signals. Right now, the call is for a consolidation of USD buying that tests resistance, and to then break higher if S&P 500 futures reverse through 1260 support.
Dollar Index Technical Section:
DXY recently reversed off the Apr 18 11 and May 13 11 swing point high and 100-day SMA at 76.00 resistance. No long-term buying signals will form until a Weekly chart can close above 76.50. No long-term selling signals will form until a Weekly chart can close below 74.50.
In the process of completing a five-wave move that tested support. Wave 1 moved from 76.50 to test 75.80. Wave 2 reversed higher and tested 76.30 and confirmed buying momentum was weak. Wave 3 made the initial test of support at 75.50 and confirmed a five-wave pattern could test 74.90 if global equity fundamentals aligned. Wave 4 moved higher but failed to break 100-day SMA resistance. Wave 5 tested 74.80 support and completed the cycle. The path of least resistance is now for a move higher.
Call to action:
Near-term, 8-hour trades, with tight targets, have the most potential to follow through, until the 74.50 or 76.50 range is broken on a Weekly chart close.
DXY Support and Resistance: Strong buying activity was seen at 74.50 on DXY trade in April and May. Market alerts and Trade Signals will be sent to clients if there is a sustainable bounce off 75.40 support.
Previous price action at these dollar index levels has been choppy, overlapping, and very volatile, but has resulted in mid-term USD buying.
Main DXY support: 72.50 and 74.50. Main DXY resistance: 76.50 and 78.00.
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, and favoring weakness in equity and commodity trade, which may increase dollar buying momentum.
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%.
Daily Client Note