Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

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

Published 17/06/2020, 12:07 am
Updated 02/09/2020, 04:05 pm

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

An exceptionally low domestic savings rate and a chronic current account shortfall are expected to get worse, as the US blows out the deficit 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.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.