Last week’s DXY commentary based on Yellen’s no raise of Fed Funds was a bullish call through normalization for DXY and was correct. Last week’s larger DXY range at a 95.36 close price was found between 86.96 – 104.55. This week’s larger range at a 96.37 close price is found between 87.88 – 105.66. DXY from weekly close to close saw a 101 pip rise as the bottom side jumped 92 pips and 20 pips in the entire distribution. DXY found support as Libor dropped from 1375 to now normal 1360, 1 and 3 month yields went negative and pertinent USD interest rates dropped severely as Yellen’s rate hike was “Priced In”.
I see DXY higher over time yet I also see Trade problems emerge between and among nations as a DXY rise decimates those currencies as USD/Other Currency. Asia, Africa, South America and the Middle East all will be affected with a severely lower currency price Vs DXY. Its net positive for those currencies to Export yet net negative in economic terms. The only example historically is found in the 1930’s as that decade was labeled Currency Wars but was actually Trade Wars as all major nations currency prices were decimated due to WW 1 and a high DXY.
Big supports below for DXY are found at 92.31, 91.55 and 90.32, Above Resistance 100.59, 101.43 and 102.89. Immediate terms, supports below 96.02, 95.52, 95.40, Above 96.70 and 97.21.
DXY. Bottom. 95.88. Range break above 96.70, 97.21, Below 96.02, 95.52 and 95.40. Overbought sell point 97.51, Failure point 96.84. Strategy. Longs above 96.36, Target 96.84 then reverse short to 96.60. Points on the way up, 96.45, 96.49, 96.77, 96.84, 97.35, 97.45, 97.51.
Shorts below 96.36, Target 96.12. Watch here for reversal to 96.36. Points on the way down, 96.32, 96.18, 96.03, 95.88 Bottom. Point 96.12 must cross to go higher.
Brian Twomey, Inside the Currency Market, btwomey.com