From the Desk of Ian Culley @IanCulley

Most emerging market currencies have been in beast mode.

The Chinese yuan is a notable exception.

In fact, most Asian currencies haven’t fared well against the dollar over the trailing three months.

Latin American and Eastern European currencies – mainly the Brazilian real and the Mexican peso – are driving these markets.  

Analyzing these currencies through the Emerging Currency Fund $CEW as it makes new 52-week highs is useful.

But I’m more interested in the Chinese yuan as it slips and slides against the dollar.

Why? 

China represents the world’s second-largest economy.

And, based on the charts, the yuan could provide valuable insight into the direction of US stocks…

Check out the relationship of the US dollar to the offshore yuan, or the renminbi (USD/CNH):

From the desk of Steve Strazza @Sstrazza

Tuesday night we held our June Monthly Conference Call, which Premium Members can access and rewatch here.

In this post, we’ll do our best to summarize it by highlighting five of the most important charts and/or themes we covered, along with commentary on each.

Let’s get right into it!

From the Desk of Ian Culley @IanCulley

Dollar bulls, be warned!

The US Dollar Index $DXY is sliding toward the lower bounds of a multi-month range. 

Yes, it’s still a sideways mess. And it will remain a mess as long as its former support level holds.

But based on the most recent data, my money is on a downside resolution for King Dollar.

Especially when I consider last week’s breakout in Canadian dollar futures…

Besides the DXY trading below 101, I’ve monitored two key data points for confirmation of continued dollar weakness:

• the euro trading above 1.08, as it constitutes over 57% of the DXY (though recently it’s challenged a 1.10 handle); and
• commodity currencies, including the Australian, Canadian, and New Zealand dollars, reclaiming their respective July pivot lows.

It’s difficult to imagine the DXY ripping higher if its dominant component is completing a bearish-to-bullish reversal. Which the euro is.

Check.

This is the video recording of the June 2023 Mid-month Conference Call.

From the Desk of Ian Culley @IanCulley

Markets are bracing for tomorrow’s FOMC decision – including the dollar.

That’s right – we have more indecisive action on tap. Let’s call it the knee-jerk before the knee-jerk, with a little help from today’s May CPI print. 

Interest rates, the US Dollar Index $DXY, and gold have yet to make a decisive directional move.

To be fair, most markets are trading within their respective year-to-date ranges (except the S&P 500 and Nasdaq 100, of course).

But if we turn to emerging market currencies, we don’t see any sign of hesitation…

Check out our EM Commodity Currency Index (equally weighting the Mexican peso, the Brazilian real, the Chilean peso, and the South African rand) posting new 52-week highs after violating a long-term downtrend line at the beginning of the year:

From the Desk of Ian Culley @IanCulley

Petrocurrencies and crude oil futures are diverging.

The currencies that benefit most from higher oil prices refuse to roll with crude’s steady decline. 

Perhaps it’s more about the US dollar than a handful of currencies tied to oil’s supply and demand dynamic.

But with OPEC up to its old tricks again – Saudi Arabia announced deeper production cuts last weekend – the question arises…

Is crude oil due for a bounce?

Check out the overlay chart of our petrocurrency index and crude oil futures:

Crude oil posted a key pivot high a week after our index bottomed in late September. Since then, these markets have taken separate paths.

This is the video recording of our June 5th Monthly Charts Live Strategy Session

From the Desk of Ian Culley @IanCulley

"Buy stocks if the US Dollar Index $DXY trades below 105!"

Simple and straightforward. That was our roadmap back in early March.

Now, almost three months later, the dollar is putting that strategy to the test as it approaches 105 from below.

That multi-month consolidation with “continuation pattern” written all over it never continued lower.

Instead, the dollar index has chopped sideways within a tight range for almost six months. And the evidence is beginning to support a possible upside resolution…

The lack of broad US dollar weakness caught my attention back in April. 

Our G-10 currency index and US dollar advance-decline line were printing potential higher lows, while DXY was on the verge of undercutting pivot lows from earlier in the year. The divergence suggested burgeoning USD strength.

Interestingly, DXY has gained roughly 3.5% since.

From the Desk of Ian Culley @IanCulley

Here we go again… 

The USD/JPY is breaking out.

I can’t think of a stronger trend than the dollar-yen last year. It absolutely ripped to the point we were joking everything priced in yen looked good – even gold!

But it wasn’t the only market trending higher at the time. The US dollar and interest rates also rallied together.

Today’s USD/JPY strength raises a painful question for many investors…

Will interest rates and the US Dollar Index $DXY follow?

Before we delve into the broader implications of a USD/JPY rally, let’s outline the setup for those who trade forex markets.

Check out the dollar-yen reaching its highest level since November 2022, completing a six-month consolidation:

This is the video recording of the May 2023 Mid-month Conference Call.

From the Desk of Ian Culley @IanCulley

Dollar up… 

Everything else? 

Down.

Last Friday’s action sent flashbacks of 2022 across my screen.

It was all King Dollar last week as risk assets and bonds sold off in tandem.

But before we all get carried away talking about the next leg higher for the dollar, let’s zoom out to get a read on where the DXY truly stands…

In the middle of a short-term range.

The US Dollar Index $DXY finished last Friday, posting its best week since peaking in late September 2022.

But it’s been stuck between 105 and 101 since December:

The DXY might have gained 1.5% last week, but it’s stuck below a key retracement level. It’s a range-bound mess like much of the market despite the recent bout of strength. 

Sideways is the trend.

From the Desk of Ian Culley @IanCulley

Dollar bulls hold the line.

The US Dollar Index $DXY is clinging to the 100 level, refusing to let go despite new 52-week highs for the British pound and a steady rise in the euro.

I’ve laid out numerous ways to play the dollar in recent months and what will confirm a DXY breakdown. None of that has changed.

But one chart caught my eye.

I was struck over the weekend by the resemblance between the commercial position in gold and DXY.

Check it out…

DXY sits up top with the commercial or smart money position in gold in the lower pane: