Chart Of The Day: Dollar Momentum Signals Move Higher Has Been Exhausted


“A crash is virtually inevitable,” according to Stephen Roach, a Yale University Senior Fellow.

An exceptionally low domestic savings rate and a chronic shortfall are expected to get worse, as the US blows out the in the years ahead. The national savings rate, adjusted for depreciation, is probably going to fall more deeply into negative territory than at any time in the history of the US, or any leading economy.

At the same time, America is walking away from globalization, as it embraces isolationism. That’s a lethal combination, as it may prompt other countries to reduce their dollar holdings.

Such a scenario could signal a shift in US world dominance, although that eventuality could take a while.

For now, the dollar has been hit with a double-punch: expanded monetary, as well as fiscal policy. This reduces the relative value of each dollar in the short term, while exacerbating the currency’s already precarious situation in the long term.

Daily DXY Technicals

The dollar just snapped a two-day advance yesterday, which appears to have been a small corrective rally within the broader selloff that followed the tipping of the scales. This ended a stand-off, handing bears a decisive win. Indeed, the implied target of the preceding range calls for a re-test of the March 9 low.

Both the RSI and the ROC—each a momentum-based indicator—provided resistance. Momentum is signaling the price has exhausted its return-move. Both momentum indicators had already returned to the levels when the price was trading within a symmetrical triangle, up to May 27.

The 50-DMA fell back towards the 100-DMA, potentially on course to cross below the 200-DMA, thereby triggering a death cross. The fact that all three major MAs aligned with the bottom of the range highlights the importance of this area as the cut-off point between supply and demand.

Trading Strategies

  • Conservative traders should wait for either a full return-move to 99.00, the pattern bottom, or for a new low, below the June 10 low at 95.71.
  • Moderate traders would wait for the price to retest yesterday’s high for a better entry.
  • Aggressive traders may short now, provided they can either afford a stop-loss to include yesterday’s high, or risk losing the position.

Trade Sample

  • Entry: 97 – above today’s high

  • Stop-Loss: 97.50 – above yesterday’s high

  • Risk: 50 pips

  • Target: 95.50 – stretching the support of the June 10 low

  • Reward: 150 pips

  • Risk-Reward Ratio: 1:3

Note: This is a trade sample, which—by definition—means it cannot account for all scenarios and is but a single trade within an overall trading strategy that a trader takes. If you place all your eggs in one basket, you’re likely to crack your eggs. Feel free to tailor the trade to your needs.

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