From the Desk of Ian Culley @IanCulley

How funny would it be if the US Dollar Index $DXY peaked with the expectations of a 100 basis point rate hike last month?

And what would that mean for risk assets and the stock market rally?

These are just a few questions that float across my mind as I look through currency charts.

To be clear, the DXY isn't showing any signs of a top. Momentum remains in a bullish regime, and the index is holding above the upper bounds of its former range. 

I’m not going out on a limb here and calling a top in the US dollar. Instead, this is all about execution and remaining receptive to all possibilities.

From the Desk of Ian Culley @IanCulley

It doesn’t matter which way you slice it. The current market environment is a US dollar story.

Whether you’re talking about stocks or commodities, a rally in risk assets isn’t happening against a rising dollar.

It’s that simple.

You probably think I say the same thing every week. That’s because I do.

Of course, I throw in a well-defined trade setup here and there, but always within the context of the dollar and its impact on the major asset classes.

It’s that important. 

As the US Dollar Index rally is well underway, it’s interesting some individual USD crosses are finding resistance at historical levels of interest to both the currencies involved and risk assets!

Here’s a chart of the US dollar/Swedish krona cross zoomed out to the late 1990s: 

...

From the Desk of Ian Culley @IanCulley

Anyone can enter a trade. It’s easy. 

But before you step up to the line to place your bet, you must have a plan – a set of rules rooted in risk management to guide you through your trade.

There’s no way to enter and manage a trade if you don’t know where you’re right, where you’re wrong, and where you’re taking profits. Without a plan, your strategy and philosophical approach to the markets don’t matter. 

That brings us to the British pound.

Here’s a chart of the GBP/USD cross:

A few weeks ago, we outlined a short setup in the GBP/USD pair. The pound was breaking down to levels associated with the Brexit sell-off, and we wanted to ride that trend lower.

Around the same time, the EUR/USD reached parity, as the US Dollar Index $DXY hit its highest level since November 2002. "Long dollar, short everything else" was the trade.  

But now that the GBP/USD is back above our risk level around 1.2025, we can’t...

From the Desk of Ian Culley @IanCulley

The US dollar and interest rates are still two of the most important charts out there. You’re probably tired of hearing it, but their future direction impacts the entire marketplace.

And, believe it or not, the currency market provides a great read on both.

Bullish data points continue to roll in left and right, supporting dollar strength. From the Korean won and Singaporean dollar to the euro and the pound, the dollar seems to break out against another currency every few days. 

No matter where we look, the US dollar is dominating. 

When we evaluate the trends in emerging market commodity currencies, it reveals insight into the recent rise in interest rates. Instead of showing strength, these currencies are catching lower -- which doesn’t jibe with a rising rate environment.

Let’s take a look.

Here’s an overlay chart of the US 10-year yield and our Emerging...

From the Desk of Ian Culley @IanCulley

It’s inescapable. If you haven’t read it in the news, seen it on Twitter, or heard it from a co-worker, here’s the scoop…

The euro has tumbled to parity with the dollar for the first time in almost 20 years!

That’s the big news in the currency markets these days. Sure, it’s a significant development.

But what currency isn’t falling against the US dollar right now?

It’s an interesting question. And it draws our attention to the Canadian dollar.

Let’s take a look.

Here’s a chart of the USD/CAD cross:

While the US dollar steamrolls everything in sight and prints fresh decade-highs against most major currencies, it’s still dealing with last year’s highs against the Canadian dollar.

Bulls continue to chip away at overhead supply, to no avail.

Remember, the resilience of commodity-centric currencies has been the story for almost a year. But the CAD is one of few left standing...

From the desk of Ian Culley @IanCulley

The US dollar has answered any and all questions about its strength over the past few months.

During Tuesday's session, there was no place to hide, as King Dollar continued the Fourth of July celebrations, putting on its own fireworks display. 

It lit up every currency on the board as major forex pairs continue to go down in flames. 

Two that stood out were the EUR/USD and the GBP/USD.

Yes, these crosses have been trending lower since the beginning of the year. But with the critical levels that broke yesterday, we're anticipating fresh downside legs and prolonged dollar dominance.

Let’s take a look.

Here’s a chart of the EUR/USD:

On Tuesday, the euro decisively broke down to its lowest level in almost two decades. 

Given its majority composition of the...

From the desk of Ian Culley @IanCulley

In almost every market environment, there are assets we want to buy and assets we want to sell. That holds even when we think the only option is to sell.

Recently, the strong buys have been in commodities and cyclical areas of the market, while bonds and the major stock indexes have sold off. That's dramatically changed in recent weeks, though.

Now, all the major asset classes –  bonds, stocks, and commodities – are under pressure, as bears come for the leadership groups. It seems nothing is immune to bearish price action these days. 

Despite the broad selling pressure, there's still an asset we want to buy: the US dollar. That’s right, the good old greenback! It’s one thing the bears can’t seem to crack.

If we think about it from an intermarket perspective, a defensive bid for dollars makes sense given the downside pressure on risk assets across the board. We don’t think it’s a coincidence.

Regardless, the USD is strong and shows no signs of changing anytime soon. 

Last week,...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Whatever we’re looking for, the market has it.

If we’re searching for large topping patterns and strong downtrends, there’s plenty to go around, especially in the bond and stock markets right now.

Some people love taking the short side, feeding on the doom and gloom narratives accompanying the selling pressure.

But if that’s not your cup of tea, plenty of markets are trending higher. If you’re more interested in assets making new highs and like buying high and selling higher, look no further than the currency market.

When it comes to forex crosses these days, it’s simple.

All we have to do is put the US dollar in the numerator or place the Japanese yen in the denominator, and we get big bases that have either broken out or are on the verge of breaking out.

It’s that easy.

We’ve highlighted the yen in recent posts, so today we’ll switch gears and focus on a couple USD crosses from northern Europe.

Let’s dive in!

Here’s the US dollar/Swedish krona cross:...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

King Dollar is reasserting its reign at the expense of major global currencies and risk assets.

What started as a potential failed breakout last month is proving no more than a hard retest, as the US Dollar Index $DXY broke to fresh 20-year highs yesterday.

Even the most resilient currencies, such as the Canadian and Australian dollars and the Mexican peso, are losing ground against a surging USD.

As we’ve pointed out, this is not an ideal scenario for risk assets – particularly stocks.

Yesterday’s price action was a great example – dollar up, stocks down. 

This is not a coincidence.

Let's zoom out and analyze the dollar’s recent strength and then discuss what it means for these other asset classes.

Here’s a daily chart of the US Dollar Index:

...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The Japanese yen continues to slide.

In early April, we highlighted the multi-year base in the USD/JPY cross. We were anticipating a significant breakout based on the broad weakness in the yen.

Even gold, one of the worst performing assets, looked strong denominated in yen.

We went so far as to title the post Anything in Yen.

Funny or not, it was true.

Not long after the post, we got the breakout we expected. And, two months later, the USD/JPY is kicking off its next leg higher, printing fresh 20-year highs.

Let's take it a step further and outline some trade setups in other currencies denominated in yen.

Remember, everything and anything seems to work priced in yen these days.

First, a quick revisit of the USD/JPY chart we shared in April. Here’s the updated version:

After retesting its recent breakout level near 126, the USD/JPY pair has...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The US dollar is on the ropes as global currencies bounce back.

After failing to hold its breakout earlier in the month, the USD looks vulnerable against a growing number of currencies.

The pound and euro are catching higher. The Swiss franc is rebounding off its recent lows. And the commodity-centric Australian and Canadian dollars remain resilient.

We can add the Mexican peso to this list, as the USD/MXN cross broke down to fresh 52-week lows yesterday. This breakdown supports the near-term bearish argument for the dollar.

And it also offers a great trade setup. 

Let’s take a look.

Here’s a chart of the USD/MXN pair:

While the Mexican peso has chopped sideways since late 2020, we believe the trend is shifting to the downside.

Last week, prices punctured the range lows as the USD/MXN hit...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The US dollar is front and center as risk assets hang in the balance.

Earlier in the month, we placed the Australian and Canadian dollars on breakdown alert as they completed major topping patterns.

US dollar strength was expanding at the time, and the AUD and CAD were the last dominos to fall.

Or so it seemed.

What started as strong downside resolutions for these top commodity currencies quickly turned into potential failed breakdowns.

Now that the most resilient currencies are snapping back against King Dollar, it's compromising the broad US dollar rally and could usher in a more favorable environment for risk assets. 

Let’s discuss what it means for stocks and commodities if these failed breakdowns resolve higher.

Here’s a chart highlighting the recent action in the Canadian dollar and Australian dollar futures:

Two weeks ago, these top commodity...