It's the weekly currency edition of What the FICC?

It’s victory at sea across currency markets. But it's not stopping the US dollar from cutting through the chop...

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From the Desk of Ian Culley @IanCulley

Challenging conditions prevail across currency markets. 

It’s victory at sea! 

But that’s not stopping the dollar from cutting through the chop.

Does that mean it’ll go on a run, applying downside pressure on risk assets?

It’s tough to say.

Nevertheless, I have one chart for you that provides clarity as the dollar begins to make its move.

Check out the triple-pane chart of the US Dollar Index $DXY, our G-10 currency index, and our US dollar advance-decline line:

At the top, we have six pairs dominated by the euro. I’ve been vocal about the significance of the euro trading below 1.08. It’s basic math.

The EUR/USD comprises more than half of the DXY weighting. If it’s trading below 1.08, it’s messy with downside risks – the perfect environment for a dollar rally.

It’s not just the euro. The lower two panes...

It's the weekly currency edition of What the FICC?

Despite the overarching range-bound action and intraday indecision across the currency markets, I continue to find trade setups with well-defined risks.

Check it out!

From the Desk of Ian Culley @IanCulley

It’s messy out there.

The CPI data came in a little warmer than expected today. And currency markets aren’t quite sure what to make of it.

Despite the overarching range-bound action and intraday indecision, I continue to find trade setups with well-defined risks.

Today, I’ll outline another vehicle to short a potential falling dollar – the Swiss franc.

I prepared to get long the USD/CHF pair last October. But the trade never materialized. Instead, it caught lower as the USD downtrend picked up steam in early November.

Fast-forward a few months, and I’m ready to short the USD/CHF pair.

Before we break down the setup, let’s zoom out:

The USD/CHF pair has remained in a structural downtrend since the 2000 dot-com bubble peak. We can interpret the past decade as a bearish consolidation within an ongoing downtrend. 

Some...

It's the weekly currency edition of What the FICC?

Yesterday, the US dollar index $DXY booked its largest three-day gain since it peaked in late September. So will today's bounce turn into tomorrow's rally?

I don't know. But you want to monitor these two levels for insight.

Check it out!

From the Desk of Ian Culley @IanCulley

The US dollar index $DXY has some extra pep in its step after posting three consecutive daily gains.

In fact, the past few days constitute its largest three-day gain since the index peaked in late September.

I think it’s safe to say the long-awaited USD bounce has arrived. The question now is whether it will turn into a sustained rally.

No one knows, of course. But these next two levels will help us prepare for an impactful dollar advance…

First, let’s zoom out…

The early 2017 high of 103.82 marks the first significant hurdle for the dollar index. Let’s call it 104.

If the DXY reclaims this key level, the conversation turns to the possibility of a  failed breakdown. For now, it’s simply pulling back to retest a critical level of former resistance.

If and when DXY bounces back above 104, that brings us to the second hurdle…

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From the Desk of Ian Culley @IanCulley

Everyone wants to know where the dollar is headed next.

It’s great investors are showing interest in the dollar, while understanding the impact it has on risk assets at the moment. 

But I have no idea where the dollar is headed. No one does.

Regardless, I can still form a framework to help make the best logical guess despite an incomplete data set. That’s what we do at All Star Charts!

So let’s recap three points I’ve made regarding the dollar in recent months that I believe hold the greatest weight…

The Time and Place for a Bounce

Given strong seasonal tailwinds and a critical shelf of former highs acting as potential support, the likelihood of a dollar bounce last month seemed probable…

The US Dollar Index $DXY has enjoyed the best returns...

It's the weekly currency edition of What the FICC?

If the US dollar index $DXY is going to catch higher, it has a funny way of showing it. I haven't ruled out a bout of dollar strength.

Nevertheless, I'm preparing to play USD weakness.

Check it out!

From the Desk of Ian Culley @IanCulley

I haven’t ruled out a US dollar bounce. 

But it seems less likely with each passing day.

Other major global currencies are regaining lost ground following a year dominated by dollar strength. It shows in the US Dollar Index $DXY as it continues to slide back within its prior multi-year range. 

Lower lows for the DXY will not instill confidence in dollar bulls. Meanwhile, savvy investors should take its performance as a signal to buy other currencies.  

Here are two of my favorite setups from the forex markets…

Check out the GBP/USD pair on the verge of completing a multi-month reversal formation:

This chart has the hallmarks of a classic inverted head and shoulders with a neckline at 1.2425 (the Dec. 14 close). That’s our risk...

It's the weekly currency edition of What the FICC?

The US dollar index $DXY registered a "death cross" last week, confirming a bearish trend reversal.

But it's not the confirmation of the dollar downtrend that has my attention. It's what the signal suggests for stocks in the coming months and quarters.

Check it out!

From the Desk of Ian Culley @IanCulley

Perhaps you’ve noticed that I don’t use moving averages.

For starters, I don’t like the way they look.

They muddy the pristine waters of price. And if I can't pick up on the underlying trend by looking at price action, then god help me.

Regardless, I do my best to stay open-minded. Everyone has their own process. Mine works for me, but that doesn’t make it superior by any stretch.

So, when Grant @GrantHawkridge dropped a US Dollar Index $DXY moving average crossover study in our analyst Slack chat last weekend, I couldn’t resist.

It wasn’t because it highlighted the “death cross” (when a 50-day moving average falls below a longer-term 200-day average), which always stirs a great deal of excitement.

Nor was it what his study suggests for the dollar in the coming weeks and quarters. 

Rather, it’s what it implies for US stocks.

Check out the chart of the DXY with a 50-day (blue line) and a 200-day simple moving average (red line):

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It's the weekly currency edition of What the FICC?

Is the dollar going to finally bounce?

I have no idea, but the euro will likely answer that question in the coming days.

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