Technically Speaking

The U.S Dollar Bear in Winter

Source: DTN ProphetX

As most of you know, I've been bearish the U.S. dollar/U.S. dollar index (USDX) for quite some time. Yes, I was even bearish BEFORE the USDX rallied to its high of 103.82 a year ago (January 2016).

Time for a detour. Writing that last sentence prompted me to go back and look to see if I blogged on the USDX last January, similar to this post. Sure enough, I did. Funny thing is, though, the move to its new high to start the new month/new year sent this U.S. dollar bear into hibernation, replacing it with a reluctant bull talking about outlandish high targets like 109.00. Of course that blog marked the high for the USDX as it collapsed into a 2-month bearish reversal on its monthly chart, sending it reeling into the downtrend we discuss today.

Back to the present. September 2017 saw the USDX post a low of 91.01, a solid test of support at 91.17. This number marks the 38.2% retracement level of the previous major (long-term) uptrend from 70.70 (March 2008) through the January 2016 high. Given the sell-off over the course of the year showed little change in direction, I would be inclined to view the move as Wave A (first wave) of a standard 3-wave downtrend.

Wave B (second wave) was fast; so fast it looks to have peaked the next month (October 2016) at 95.15. Notice that this is a test of resistance between 94.03 and 95.90, the 23.6% and 38.2% retracement levels respectively of Wave A. After falling back in November and December the USDX looks to be in Wave C, meaning a new low should be in the offing during 2018. How low? With Wave A testing the 38.2% retracement level it would be logical to project Wave C to take out the Wave A low (91.01), possibly to the point of testing the 50% retracement level of 87.26.

However, and this is key given what happened in 2017, monthly stochastics are already below the oversold level of 20%. As we saw early last year when stochastics were being led by a series of bearish crossover above the overbought level of 80%, the USDX could see downside momentum start to wane in early 2018 given its already oversold status.

For now, though, this dollar bear will remain bearish, believing that Wave C will take the USDX to a new low. Stay tuned for updates as 2018 progresses.

To track my thoughts on the markets throughout the day, follow me on\Darin Newsom


To comment, please Log In or Join our Community .