Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

U.S. Dollar Pulls Back After A Monster 12 Months

By Mike Zaccardi, CFA, CMTForexMay 26, 2022 01:04AM ET
www.investing.com/analysis/us-dollar-pulls-back-after-a-monster-12-months-200624874
U.S. Dollar Pulls Back After A Monster 12 Months
By Mike Zaccardi, CFA, CMT   |  May 26, 2022 01:04AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

This post was originally published at TopDown Charts

  • US economic growth fears have cascaded to the dollar as the greenback has pulled back over the last two weeks

  • Disappointing corporate earnings and troubling economic data further lead traders to believe that a US recession may not be far off

  • There are important intermarket considerations should the USD pause after a huge run off its low a year ago, and some signs of a "blow-off top"...

Growth fears are becoming front and center after inflationary worries were top of mind earlier in 2022. A bearish regime change continues to unfold. We see this mindset shift across asset classes over the last month or two. US Treasury yields retreated sharply off the highs while the US dollar has pulled back off an incredible 17% advance from a year ago. Recession fears cascade across trading desks following some dismal earnings reports last week and concerning economic data this week.

A Blow-Off Top?

Zooming in on the greenback, going into Wednesday, the US Dollar Index (DXY) was off nearly 3% over the previous eight trading days—nearly the worst dollar drubbing since the COVID crash. That’s unmistakable evidence of traders’ questioning the strength of the US economy. The dollar had rallied sharply starting a year ago to coincide with incredible nominal and real domestic economic growth. A negative Q1 GDP print was largely dismissed since it was due to a reduction in net exports while consumer activity was still strong.

Micro Problems Underscore Macro Problems

Then came the awful profit results from retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT). While we don’t focus so much on the micro, those major chains’ warnings and poor execution indicate trouble at the macro level.

The past few weeks have also included a pullback in expectations for both future inflation and how much the Fed will tighten. These are key clues that suggest a US recession is not far off; the US Dollar Index is responding accordingly.

Our featured chart below illustrates a huge DXY move over the last 12 months.

Featured Chart: US Dollar Index Breaks Out, then Pulls Back

US Dollar Index vs G10 Breadth
US Dollar Index vs G10 Breadth

Dollar Details

Our weekly Global Cross Asset Market Monitor report, sent each Monday morning to clients, details what’s happening with the DXY. The common ETF to play the dollar is the Invesco DB US Dollar Index Bullish Fund (NYSE:UUP). The Index spiked above 105 last week to cap off a stellar run from under 90 a year ago. It then dipped under 102 this week before bouncing back Wednesday. Our composite breadth indicator suggests a possible blow-off top in the USD.

Intermarket Relationships

The weekly report digs into previous instances of max-breadth turning into lackluster dollar performance thereafter. Macro traders know well that when the DXY reverses course, there are major ramifications to other asset classes. We have already seen relative strength from foreign stocks vs US shares as well as buying of Treasuries. Recall how the January through March period featured an interesting correlation between higher interest rates and a higher USD.

The Bottom Line: Traders should be on the lookout for possible moves lower in the DXY. That being said, the index rests at a critical support point. A deeper pullback could ease the pressure in some foreign markets, including EMFX. Expect continued volatility in the currency world as market participants grapple with looming global recession risks.

U.S. Dollar Pulls Back After A Monster 12 Months
 

Related Articles

Kenny Fisher
Will RBA Hike Boost The Aussie? By Kenny Fisher - Jul 04, 2022 1

We are seeing plenty of volatility from the Australian dollar. AUD/USD is trading at 0.6883 in European trade, up 0.98% on the day. The Australian dollar has recovered most of its...

U.S. Dollar Pulls Back After A Monster 12 Months

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other 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, don’t trash it.

  •           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. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. 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 Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
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?
 
Post
 
Replace the attached chart with a new chart ?
1000
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 Investing.com'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
Continue with Google
or
Sign up with Email