Thursday, October 15, 2015

U.S. Dollar Spurns Early Gains

DXY: The U.S. dollar has entered a stage of protracted weakness that accelerated yesterday with the largest open to close decline since late August.  That August 24th decline followed three consecutive bearish sessions and marked a 7 month low to 92.621.  It failed however to mark a new low close below the mid-May 93.135 level and a spirited bounce ensued.   

The current dollar decline has been less aggressive, but is expected to proceed further.  I draw a channel that shows dollar weakness at a pace of 0.187 daily.  The upper end of the channel is drawn tight against recent highs where the index has not settled above.  Today, the channel is marked between 92.74 and 94.62.  Today’s earlier high reached just shy of that channel t-line before stalling.  This intra-session recovery has helped to remove immediate or very short term oversold conditions. 

A settle outside of the channel will change the near-term picture.  Otherwise, current trade is nearer to the channel top than bottom.  While a reprieve today from eight consecutive new session lows is still possible, we would recommend postponing bullish participation until there is a settle above the channel.  Oversold conditions are not a consideration at this stage and a 1.3% decline from yesterday’s close would be necessary to signal oversold now. 

Currently, the dollar is forming a bullish Harami from today’s and yesterday’s price action, but the location of this formation, if it holds into the close, leaves its implications muted.  Already the dollar has fallen over 0.4% from the inta-session high and resistance at the September 17th closing level.  There is likely a greater chance today for a new low rather than a new session high.    

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