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Dollar Bulls Running Out Of Steam? (DXY Analysis)

After a bit of a choppy start for the Dollar, 2018 has turned out to be a great year for the global reserve currency so far. We saw DXY dive almost 10% in 2017 which carried over into January this year but the 88.00 level provided sufficient support to see gains of over 5% this year (at the time of writing).

As global economic uncertainty prevailed, the Dollar took off during the first half of the year only hesitating at the 95.00 level. We saw the first real attempt at a retracement during the months of August and September but this was relatively insignificant and DXY failed to remain below the moving averages. Now, more bears appear to be entering the market as the DXY chart begins to flatten in consolidation.

Recent cautious tones from the Federal Reserve and other central banks such as the ECB are also adding weight and pressure to a lower Dollar value and at the moment they are well priced in with significant resistance zones.

The 97.50 resistance has proven to be quite a significant supply zone having now seen 3 weekly rejections from this level. November’s monthly candle closed as a doji which supports the fact that there is hesitation towards the continuation upside.  This level also represents a 61.8% level of a long-term downside Fibonacci (seen above) which as we know is a significant reversal region.

If we scale down to the Daily timeframe we can see that price has been consolidating within an ascending triangle. While still supported by the moving averages there is the potential for further consolidation as we approach the start of 2019. Although, in line with our weekly and monthly perspectives, we would expect to see this formation broken towards the downside and 96.00 support fulfilled initially. This may well initiate the overall trend reversal which could see the dollar tumble to 94.00 and even 90.00 support. This bias is valid across the markets as we see USDJPY and USDCAD both in positions to fall short (medium-long term) as well as GBPUSD with massive upside potential.

If we consider the upside potential for the US Dollar then we would need to see a strong close beyond the current 97.50 level to extend through 98.00 resistance to meet 100.00 targets. In line with the overall bias we would still be looking for price to turn downside from that price.

In short, the answer appears to be ‘yes’- upside momentum is slowing down for the Dollar. Is it completely finished? That is yet to be seen but for now all we can do is sit back and enjoy the festive season as liquidity decreases.

2019 will definitely be an interesting year.

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