US DOLLAR TO FRESH 2018 HIGHS, AGAIN

The US Dollar has continued to rally and as we open Tuesday trade out of the US, the currency remains at fresh 2018 highs. We had some commentary from Fed Chair Jerome Powell earlier this morning taken from a speech in Zurich. He had a couple of interesting comments, key of which was remarking that he felt that the role of US monetary policy in driving global capital flows was often exaggerated. He also went on to say that ‘some investors and institutions may not be well positioned for a rise in interest rates, even one that markets broadly anticipate.’ This seemed to imply that there will never be a ‘perfect’ time to hike rates, and this denotes the potential for continued hawkishness at the world’s largest Central bank.

All in all, that speech had a hawkish overtone very similar to what we’ve seen from Mr. Powell so far this year after taking over the reins of the bank in February. This was around the same time that the US Dollar began to carve-out a bottom around 88.42, which is the 61.8% Fibonacci retracement of the 2014-2017 major move. After that support came into play, prices oscillated back-and-forth for a couple of months before buyers eventually took control. And what started as a bear flag/short-squeeze scenario just has not stopped for three weeks, and here we are 5.5% higher in the US Dollar index from those February lows. At this point, we can begin to ask the question of whether or not the US Dollar down-trend has finally come to an end after what was an aggressive fourteen months of selling.

US DOLLAR VIA ‘DXY’ WEEKLY CHART: HAS THE US DOLLAR DOWN-TREND ‘MET ITS MAKER’?

Chart prepared by James Stanley

To get more clarity behind that question, we can focus in on that recent down-trend by adding a Fibonacci retracement. This will help to highlight that while the past few weeks have seen an aggressively-strong US Dollar, we’ve still only retraced a small portion of that prior sell-off. We’ve added that retracement on the below chart in green, and this helps to show how we’ve yet to approach the 38.2% retracement of that prior bearish move. That 38.2% level comes-in very near the 38.2% retracement of the 2014-2017 major move, so this would be a confluent area of potential resistance around 94.30 should the run in USD continue. That area is outlined with a red box on the below chart.