USD Rally No Longer a Counter-Trend? Index Chart Has the Answers

Cary Artac, a veteran Futures and ETF analyst, offers an analysis of the issues concerning the US dollar’s mid to

This article is written by Cary Artac

ABOUT THE AUTHOR: Cary Artac is a veteran Futures and ETF analyst who owns and operates Artac Advisory Inc, a CTA that publishes daily and weekly advisory newsletters for institutional trading firms in the US and internationally. Cary has developed a technical process that provides (accurate) trend-identification results correlated with highly specific price-support levels.

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Pressing questions continue to engage the financial community concerning the US dollar’s mid to longer-term directional bias, and those fundamental forces acting upon it into later 2015. Will US GDP continue to measurably outpace that of the other major economies? Will US monetary policy soon diverge from them as well, as the US Federal Reserve contemplates its first rate hike in 9 years? While impossible to know the correct response to both, current technical dynamics expressed across a long-term US Dollar Index chart suggest the answers to be “quite likely”.

Until late last year, the US dollar rally was largely considered to be counter-trend in nature, still holding within the confines of a 6-year consolidation pattern. That perspective changed several months ago as the end-of-January settlement in the USDX above a long-term, horizontal channel formation (92.20; longer-term chart) indicated continued longer-term gains for the US currency through 2015 and beyond.

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As of this late March, 2015 analysis, a USDX technical “floor” in the 91.28 – 92.20 region (June 2015 Futures), comprising both the aforementioned 6-year channel top (92.20) as well as a trend-defining, ascending 1/3 speed line (91.28), can absorb selling pressures through 2015. Holding above this region maintains a 12-18 month, 115.21 price target. Along the way, the 102.28, classic 61.8% Fibonacci upside retracement is considered an intermediate objective (over the next 5-8 months) able to contain quarterly buying pressures when tested.

US Dollar zoom (1)

Nonetheless, a monthly settlement above 102.28 is certainly possible via 2015 activity, with an end-of-April settlement above 102.28 adding more fuel to the US dollar rally. Under this secondary bullish scenario, price acceleration should continue into Q3, an increasingly vertical move then capable of reaching the 115.21 price target in as little as 3-5 months where the dollar can top out into later decade.

There is the possibility, of course, that over the next 3-5 months the US dollar will fall back below the critical 91.28-92.20 support threshold. Fundamental forces involved in this (unexpected) development could be one of a number. Will Crude Oil suddenly barrel its way out of the $50.00’s and into the $70.00’s (read failed Iranian Nuclear Talks)? Will the possibility of a less-than-robust US economy through Q2 cause the Federal Reserve to hold fast on its nine-year, zero interest rate policy, and thereby defy current expectations to the contrary?

US Dollar long-term (1)

While good cocktail party conversational fodder, the fundamental causes of a US dollar course reversal are largely irrelevant to the technical purist. In clear terms, an end-of-April settlement in the US Dollar Index back below 91.28 (June 2015 Futures) would nullify the late January long-term buy signal, in the process signaling 8-12 months of continued price erosion into the lower 80.00’s (see second chart).

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