The U.S. dollar (USD) has had a muted rally since its recent low printed during Feb. 2018, following EUR weakness.  Keep in mind that the USD Index is a measure of the value of the USD relative to a basket of foreign currencies. The USD goes up when it gains “strength” compared to other currencies.

  • Euro (EUR): 57.6% weight
  • Japanese yen (JPY): 13.6% weight
  • Pound sterling (GBP): 11.9% weight
  • Canadian dollar (CAD): 9.1% weight
  • Swedish krona (SEK): 4.2% weight
  • Swiss franc (CHF): 3.6% weight

EUR weakness came about after the European Central Bank (ECB) kept their interest rates on hold and did not provide a timeline for tapering and ending their Quantitative Easing (QE) program.  Furthermore, data perceived as strength in the Eurozone towards the end of 2017 signaled that an end to QE was coming soon, and speculators expected that the ECB would start raising rates in 2019.  It “was priced into” the markets.  That expectation has faltered over the last few weeks as Eurozone economic data has become a bit weaker, and last week, the ECB said they’re keeping a close eye on the situation. All of that was enough for algorithms and traders to sell the EUR.

Along with EUR weakness, another catalyst behind the USD rally is the continued rise in U.S. Treasury yields.  On Tuesday, the benchmark on the 10-year note broke through a psychological 3% level for the first time in over four years, partly due to concerns about rising inflation and growing concerns over the national debt.  Note that stories about the death of the bond bull market have been circulating since 1992, and every one of them has been wrong.  Remember, for the POTUS’ plan to MAGA, he cannot have a strong dollar right now.

On to the USD charts. To view a larger version of any chart, right-click on it and choose your “view image” option.

Back on Feb 5th, I published The Sovereign Debt Taper Caper Vs. Bonds – Gold and USD Charts, with the following note and USD weekly…

“The $88.70 lateral drawn from 2008-2010 and the 61.8% Fibonacci (May 2014 low – Jan. 2017 high) at $88.42 formed a confluence, which prevented the price from collapsing further. It appears there may be a period of chop here, with a potential dead cat bounce, then off to lower lows.  I added the Bearish Head and Shoulders on this chart, as the lower trendline of the Ascending Broadening Wedge is now history.”

On April 8th, I published Remonetization of the Pet Rock, and a Gold Chart Update, with the following USD weekly, pointing out that a Death Cross was threatening…

USD monthly as of Apr. 27 close…

As noted earlier, beginning in Feb. 2018, the lateral drawn from the 2008-2010 highs met the 61.8% Fibonacci (2014 low – 2017 high) at $88.42 and formed a confluence of support.  The 21, 150, and 100 EMAs are also contributing to the support on this monthly.  A potential Dead Cat Bounce is brewing.  A decisive breach of the overhead 50 Exponential Moving Average (EMA) would kill the cat and likely lead to further upside price action, breaking the current bearish downtrend.

USD weekly as of Apr. 27 close…

The potential Dead Cat Bounce has a rising price channel, which is a Bear Flag pattern.  The Death Cross threat remains, as the 50 EMA is just beginning to cross below the 200 EMA.  The price stopped dead in its tracks on last week’s candlestick at the overhead 23.6% Fibonacci (drawn from the 2017 High – 2018 Low).  When drawing the downtrend line off the 2017 high, it is easy to miss that there are actually two.  The first was breached decisively by last week’s candlestick.  The second is sitting slightly above the Death Cross.  Stiff resistance remains before anyone can know for sure that the USD has broken away from its bearish downtrend.  The DMI-ADX lines are kissing here, without a definitive cross to the positive.  The StochRSI is stoked and floating topside, which indicates overbought territory. The RSI is reaching the 50 level and needs to be left in the dust for any bull move to take hold.

Despite the recent rally, I remain Bearish but Neutral near-term until the 50 EMA on the monthly is breached decisively to the upside and the Death Cross and secondary downtrend line on the weekly are taken out with strong upside candlesticks.

Let’s dance to the twisting dollar.  Pulp Fiction – Dance Scene

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