Thursday, November 19, 2015

Dollar Bear Reverse Despite Forthcoming Fed Hike(s)

The dollar index (DXY) is everyone’s friend.  Being a good friend, it is expected to advance regularly as the Fed is expected to begin ‘normalizing’ monetary policy in December with a first rate hike in almost a decade.  DXY has had some difficulties breaching 100, a level reached in March for the first time 12 years.  Given the divergence in global central bank policies, this 100 level should not be a difficult challenge. 

And still, we see another potential bearish reverse at or around the 100 level.  Yesterday, DXY formed a ‘doji’ showing heightened indecision as it made a new 7 month high.  That indecisive trade is being followed a gap lower today and continued dollar bearish trade.  A settle 99.20 or lower would clearly point to changed sentiment and we would be right to question the commitment of the bullish contingency. 

The dollar weakness may have more to say about the Fed ‘normalization’ already having been priced than a change in expectation in the timing of that normalization.  An additional consideration is that global growth outside of the United States is given greater favor than previously. 

In any event, the technical picture which includes a bearish ‘three rivers’ pattern in candlestick analysis point toward a potential reverse from recent strength.  Because this potential reverse occurs near the 12 year highs that were thwarted in March thru April, we charge technical developments with more importance. 

An objective of short positions on expectation of a reverse might consider 98.00 though there is a good chance for a move to 97.60 or lower.  

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