USD (DXY) nears an important target

As the global counter-party, USD’s recent failure has been the primary source of financial market cheer lately. But as usual, things are not so easy as defining a target, having an item reach that target and all’s well and good because we planned for it.

What is not normal to our plan is that USD has dropped like a stone, nearly to the primary objective of the daily SMA 200 (orange). If USD is going to hold the MA 200 then there will likely be trouble for seasonal party goers. That is because USD is testing the major daily uptrend now. If the test is successful, there should be some at least interim disturbance in financial markets before the seasonal party resumes.

us dollar index (DXY)

Here are some options for what is ahead.

  • USD could bounce from the 105 area to resistance at 108 or 110, fail and then break down to lose its uptrend. That could bring some market volatility first and then a more extended bull phase well into 2023 of a softening Fed story gains traction.
  • USD could soon find support at the key marker (SMA 200), re-bull and wreck casino patrons spirits for the season as the bear market resumes.
  • USD could break down.

I want to be careful about that last option because ‘it ain’t broke til it’s broke’ and at/above the SMA 200 Uncle Buck ain’t broke. So, one step at a time works best, as with most things.

Widening the picture we see that if USD were to lose the SMA 200 above and break down there are more very valid downside targets. For example, the SMA 200 above corresponds with a decline to only the 38% Fib retrace level at 105. A Fib 50% retrace would bring the buck to 102 and a support test of the 2020 high. Viable? I think so, under the circumstances of weakening inflation indicators, which finally got tardy Fed all hawked up in the first place.

So if 105 has been the primary pullback target then 102 is right there, next in line.

us dollar index (dxy)

Just a little chart gazing and thoughts on the possibilities for you this morning. It’s important because this global reserve currency is still king of the anti-asset world and what it does matters, opposite to many other assets.