After forming a double top stretching back more than three years, the U.S. Dollar Index broke down decisively. With the dollar’s follow-through to the downside in late July, a nine-year up trend was smashed. As my work projected, this launched a new bear phase for the dollar.
One of the first things to jump out on the chart shown below is the “double top” (at the 2017 high and the recent March high). Adding to the significance of the double top is that it developed exactly at trendline resistance in the 102-104 area—and that resistance dates back to 1997.
An important failed retracement rally—the entire advance from 2008—could not recover more than 5/8 of the decline from the 2001 peak. When a bull phase cannot retrace more than 60%-66% of the prior decline, then a new bear phase usually begins.
Even more important, with the nine-year uptrend break, the U.S. Dollar Index (ticker: DXY) broke below an entire two-year trading range. Now in its initial down leg, the index has much further to go in time—and likely in price—in this bear phase.
👉 The US dollar index (USDX) continued the recovery to close above the 10-day EMA at 93.59, while the yield on 10-year Treasuries increased to 0.58%. JPY was little changed at 105.96.
👉 EUR fell to 1.1736 amid the USD recovery, closing below the 10-day EMA for the first time since early July. GBP climbed to 1.3073 ahead of ILO unemployment rate.
👉 AUD edged lower to 0.7148 despite the upbeat China’s CPI and PPI figures. Australia’s NAB Business Confidence/Conditions are on the radar (11:30 AEST). NZD dropped below 0.66, with New Zealand reporting 100 days of zero community transmission. USDCAD eased to 1.3351.
👉 Gold extended the decline to $2027.30 and found support at the 5-day EMA. Weighed down by a stronger dollar as investors focused on the fiscal stimulus plan in the United States and escalating Sino-US tensions ahead of key trade talks later this week. Elsewhere, China imposed sanctions on 11 US citizens including lawmakers from President Donald Trump’s Republican Party in response to Washington’s imposition of sanctions on Hong Kong and Chinese officials accused of curtailing political freedoms in the former British colony while US Treasury Secretary Steven Mnuchin said companies from China and other countries that do not comply with accounting standards will be delisted from US stock exchanges as of the end of 2021. Looking ahead, Gold, often seen as a safe-haven asset could benefit from the rising geopolitical tensions and economic crisis as a result of the pandemic.
👉 Silver advanced to $29.12. WTI crude (XTIUSD) rose to $41.92 as Saudi Aramco expected the demand to continue improving.
As we have observed earlier in the Currency Monitoring Chart, we discovered that AUD/JPY lines are separated with the farthest distance.
The following is AUD/CAD looking at 4 hour chart:
INTRADAY MARKET INSIGHTS
Rebound continues. The pair has just crossed above the upper Bollinger band while accelerating to the overhead resistance at 106.20 (around the high of yesterday). Strong upward momentum is evidenced by the relative strength index, which is well directed in the 60s. A break above 106.20 would trigger a further advance toward 106.30. The trailing key support has been raised to 105.80.
Downside prevails. The pair keeps sliding after failing to post a sustainable rebound. The relative strength index has sunk below the over-sold level of 30 without showing signs of a bullish reversal. Therefore, intraday bearishness persists, and the pair should fall toward 1.1720 and 1.1695 on the downside. The trailing key resistance has been lowered to 1.1770.
Key resistance at 0.7170. The pair is holding on the downside and is under pressure below the key resistance level at 0.7170. The relative strength index is around its neutrality level at 50, suggesting the lack of upward momentum for the prices. Hence, as long as 0.7170 holds on the upside, expect a drop with targets at 0.7140 and 0.7125 in extension. Alternatively, a break above 0.7170 would bring a rebound with 0.7185 and 0.7200 as targets.
Rebound expected. The pair is trading above the key support level at 0.6569, which should limit the downside potential. The relative strength index indicated a bullish divergence signal, suggesting the loss of downward momentum for the prices. To sum up, unless the support level at 0.6569 is violated, the pair should rebound to 0.6617 and 0.6630 in extension. On the other hand, a break below 0.6569 would open a path to 0.6547 on the downside.
Under pressure. The pair retreated and tested the 50-period moving average. The relative strength index is around its neutrality level at 50, showing the lack of upward momentum for the prices. Hence, as long as the resistance level at 1.3090 is not surpassed, expect a return with targets at 1.3055 and 1.3040 in extension. In an alternative scenario, a break above 1.3090 would for a new up leg with 1.3110 and 1.3130 as targets.
Continuation of the rebound. The pair posted a rebound after touching the rising 50-period moving average. The relative strength index is heading upward, calling for a further advance. To sum up, as long as the support level at 0.9140 is not broken, we anticipate a rise with targets at 0.9170 and 0.9185 in extension. On the other hand, breaking below 0.9140 would call for a return with 0.9125 and 0.9110 as targets.
Towards 1.3310. The pair has broken below a rising trend line drawn from August 6. In fact, the 20-period moving average has crossed below the 50-period one, while the relative strength index has dropped to the 40s, indicating a bearish bias. Unless the key resistance at 1.3370 is surpassed, the pair should proceed to 1.3330 and 1.3310 on the downside. Alternatively, a break above 1.3370 would open a path to 1.3395 on the upside.
Downside prevails. The pair is trading within a bearish channel drawn from August 6. Currently, it is capped by the 20-period moving average, which stays below the 50-period one. The relative strength index remains subdued in the 30s, signaling a bearish bias. Below the key resistance at 124.62, expect a decline to 123.95 and 123.78. Alternatively, a break above 124.62 would trigger a rebound to 124.90.
Rebound. The pair has stabilized after reaching the bottom of its recent consolidation range. In fact, it has rebounded to challenge the 20-period moving average, while the relative strength index shows a lack of downward momentum. As long as the key support at 0.8954 holds, the pair should target 0.9015 and 0.9030 on the upside. Alternatively, below 0.8954, expect a drop to 0.8928.