Breaking News

Chart Of The Day: Dollar On Course For 85.00

By (Pinchas Cohen/ 24, 2017 10:01AM ET
Chart Of The Day: Dollar On Course For 85.00
By (Pinchas Cohen/   |  Jul 24, 2017 10:01AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

by Pinchas Cohen

America The Economically Not-So-Beautiful

America the Beautiful may still be one of the US's most well known anthems, but according to the International Monetary Fund (IMF), America's economy is not nearly as beautiful as it once was. The global economy is less reliant on the US, more on the eurozone, China, Japan and Canada.

This comes after the dollar index has already fallen to its lowest level since June 2016. The slide began after investors bid it up on the reflationary hopes markets had for the newly elected President Donald Trump.

However, that very same Donald Trump told the Wall Street Journal on January 17 the strong dollar was “killing us,” which incidentally, killed the dollar rally.

Since then, ongoing, often disappointing economic reports kept pushing the greenback lower, even as the Fed tried to convince investors that inflation will rear its lovely head at any moment. When Fed Chair Yellen finally admitted what dollar and yield investors already knew—that inflation was not coming as quickly as the Fed had anticipated—it just made matters worse for the US currency.

The final straw, however, may have occurred in late June, when ECB President Draghi began talking merely about tapering, in contrast to Yellen who had already mentioned shrinking the US balance sheet. The euro shot up to its highest price since August 24, 2015 and highest close since January 14 of that year.

While the IMF forecast 3.5 percent global growth this year, it estimates only 2.1 percent growth in the US and not just for this year, but for next year as well.

China, Eurozone, Canada Growing

This lowered estimate is merely readjusting expectations to what they should have been in the first place. The only reason the IMF expected more from the US was because of anticipated fiscal policy from the Trump administration. However, in June the IMF joined dollar and Treasury traders when they finally stopped counting on Trump’s policies for growth.

Furthermore, while the US economy is contracting, other nations' economies are expanding. China’s forecast is for 6.7 percent growth, up 0.1 point from April’s world economic outlook. For 2018, the forecast is a more moderate 6.4 percent, but still an increase of 0.2 points from three months ago.

The forecast for Japan climbed 0.1 point to 1.3 percent. The euro area is expected to grow 1.9 percent, up 0.2 points from three months ago, and an additional 1.7 percent in 2018, up 0.1 point. Even, Spain with all its economic problems, is forecast to be the eurozone’s bright spot for both years, with a revised growth forecast of 3.2 percent. Finally, it looks like Canada will be this year’s economic growth leader, expanding at 2.5 percent, up a whopping 0.6 points from April.

Final Nail In The DXY's Coffin?

The IMF report delivers a double whammy against the dollar. First, it confirms what dollar bears have been saying this year. Second, it may be the last nail in the dollar’s coffin.

DXY Weekly Chart
DXY Weekly Chart

While the index collapsed nearly 10 percent since December, it has moved sideways in a two-year view. The very lowest price during this time is the May 2016 low at 91.92.

Consider that the last level at which you may expect demand. Once that level is violated, there can be no expectation of demand until the 2013 highs at 84.00-85.00.

Naturally, the 90.00 level should also provide psychological round-number support. However, should the $92 price level break, the implication would be of an at least 800 point downward descent – which just so happened to jibe with the 2013 support – and which ultimately takes the index far below the presumed 90.00 support.

DXY Daily Chart
DXY Daily Chart

On the daily chart, the moving averages are deep within a bearish pattern, in which recent prices are much lower than longer prices, on the weekly chart – because the currency has moved sideways on a macro level – the price fell only below the 50 and 100 week moving averages, while those are in a bearish pattern.

Note how the 200-week moving average has just crossed above the 92.00 support, in a rush to defend the line. Presumably, it will rise to the 93.00 price level – to reflect a correction in the price – which has proven a repeated support above the absolute low of 92. That level is marked by a thin red line. The price is likely to fluctuate there before it attempts to cross below the last support of the past four years.

Trading Strategies

Conservative traders may be concerned about shorting the dollar, after having seen it already decline 10 percent since its December high. They may wait for a correction. Ideally, the price would return to its December down trendline, but that's very high, and would require a very sharp correction. At this angle, it is situated at 99.00, but since it falls with time, a full correction to the line may meet at 97.00.

Moderate traders may share some of the same concerns and wait for a correction as well. They’d be happy with a correction to the current, steeper downtrend line since April 7. At this angle, it is situated at 96.50, but since it falls with time, a corrective rise will probably meet with it around 95.50.

Aggressive traders would be thrilled to short after a corrective return to the psychological round-number support of 95.00.

Very Aggressive traders may go long on a corrective move, before shorting at the key prices, or upon seeing pressure build up.

Chart Of The Day: Dollar On Course For 85.00
Chart Of The Day: Dollar On Course For 85.00

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email