US Dollar Testing Monthly Support
It has been quite a week for the US dollar. Consistent with the US Dollar Index—a geometrically-weighted average of the dollar’s value against a basket of six major currencies, including Europe’s single currency—the greenback plunged -2.3% last week, marking its largest one-week decline this year, along with refreshing YTD lows and driving price action into the hands of monthly support from 99.67.
Technically, as featured in last week’s Weekly Market Insight, trend studies on the monthly timeframe show price action has been northbound since bottoming in 2008 at 70.70 if one focusses on the longer-term swings. Q4 (2022), as you can see, staged a noteworthy correction from 114.78 (from channel resistance), which remains active in 2023. Predictably, due to the fractal nature of the markets, this displayed a visible downtrend on the daily chart, which also remains active.
With price action on the monthly timeframe now shaking hands with support at 99.67—a level I have watched for several months—this heavy-weight barrier, complemented by two neighbouring Fibonacci ratios (38.2% and 61.8%) at 98.72 and 98.95, respectively, may prove difficult to conquer. It is worth noting that this area is further reinforced by nearby indicator trendline resistance-turned-support drawn from the high of 82.87 from the Relative Strength Index (RSI). As highlighted in previous writing, the RSI tends to establish support around the 40.00-50.00 area in trending environments; consequently, many use this zone as a temporary oversold base to locate positive divergence.
On the daily timeframe, after clearing support from 100.27-100.77, price action is now seen testing a 100% projection ratio at 99.67 (many will recognise this as an equal AB=CD bullish formation). Also nearby is a 1.618% Fibonacci projection ratio at 99.17 (‘alternate’ AB=CD bullish pattern). Despite these bullish AB=CD patterns often performing more effectively when taken in uptrends (not downtrends), the RSI explores the oversold space, touching levels not seen since December 2020, which could underpin current AB=CD support. If this support zone does indeed cede ground, the lower side of monthly support (the two Fibonacci ratios at around 98.80ish) will likely welcome price action.
Considering the above analysis, the combination of monthly and daily support may inspire profit-taking this week, leading the index back to at least daily resistance of 100.27-100.77. Any movement north of here, and we could see the unit aim for daily resistance as far north as 102.00. Technically speaking, although the trend is south on the daily timeframe, shorting a break of current daily support (99.17-99.67) will likely be too precarious for many traders knowing they would essentially be selling into the monthly support area.
Technically, as featured in last week’s Weekly Market Insight, trend studies on the monthly timeframe show price action has been northbound since bottoming in 2008 at 70.70 if one focusses on the longer-term swings. Q4 (2022), as you can see, staged a noteworthy correction from 114.78 (from channel resistance), which remains active in 2023. Predictably, due to the fractal nature of the markets, this displayed a visible downtrend on the daily chart, which also remains active.
With price action on the monthly timeframe now shaking hands with support at 99.67—a level I have watched for several months—this heavy-weight barrier, complemented by two neighbouring Fibonacci ratios (38.2% and 61.8%) at 98.72 and 98.95, respectively, may prove difficult to conquer. It is worth noting that this area is further reinforced by nearby indicator trendline resistance-turned-support drawn from the high of 82.87 from the Relative Strength Index (RSI). As highlighted in previous writing, the RSI tends to establish support around the 40.00-50.00 area in trending environments; consequently, many use this zone as a temporary oversold base to locate positive divergence.
On the daily timeframe, after clearing support from 100.27-100.77, price action is now seen testing a 100% projection ratio at 99.67 (many will recognise this as an equal AB=CD bullish formation). Also nearby is a 1.618% Fibonacci projection ratio at 99.17 (‘alternate’ AB=CD bullish pattern). Despite these bullish AB=CD patterns often performing more effectively when taken in uptrends (not downtrends), the RSI explores the oversold space, touching levels not seen since December 2020, which could underpin current AB=CD support. If this support zone does indeed cede ground, the lower side of monthly support (the two Fibonacci ratios at around 98.80ish) will likely welcome price action.
Considering the above analysis, the combination of monthly and daily support may inspire profit-taking this week, leading the index back to at least daily resistance of 100.27-100.77. Any movement north of here, and we could see the unit aim for daily resistance as far north as 102.00. Technically speaking, although the trend is south on the daily timeframe, shorting a break of current daily support (99.17-99.67) will likely be too precarious for many traders knowing they would essentially be selling into the monthly support area.
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