The US dollar index ($DXY): The US dollar index completed a bullish key reversal during July, confirming a move to a major (long-term) uptrend. Given the main fundamental factor of the dollar is interest rates, the implication is the US Federal Open Market Committee could raise rates over the coming months rather than make cuts. We’ll see. Note monthly stochastics moved back above the oversold level of 20% before establishing a bullish crossover. This leaves the door open to a possible pullback by the Index before gaining bullish momentum. The Index did weaken during August, hitting a low of 97.56 before closing the month at 97.77, down 2.20 from the July settlement. Theoretical Positions: Investors might’ve bought back previous short positions near the July close of 99.97. These shorts were established near the January 2025 close of 108.37 based on the completion of a bearish spike reversal. If new longs were (are) established, sell stops would be placed below the July low of 96.37.
The Euro (^EURUSD): The euro completed a bearish spike reversal during July, confirming a move to a major downtrend. However, monthly stochastics did not complete a bearish crossover above the overbought level of 80%, leaving the door open to a possible retracement rally over the coming months. This is also a characteristic of the spike reversal. The euro strengthened during August, hitting a high of 1.17426 in relation to the July peak of 1.18295 before closing at 1.16853, up 2.4% for the month. Theoretical Positions: Investors could’ve liquidated previous longs and gone short the euro near the July close of 1.1415. Additional shorts could be established with the euro near the July high. Once short positions are established, buy stops would be placed above the July high of 1.18295.
The euro/Canadian dollar (^EURCAD) looks to have erased the bearish spike reversal from July during August. Theoretical Positions: Previous long positions would’ve been liquidated and new short positions established near the July settlement of 1.58165. Buy stops would’ve been triggered above the July high of 1.61301, resulting in a loss of 0.03136.
The Canadian dollar (^CADUSD) remains in a major uptrend. The loonie turned long-term bullish at the end of February as it completed a bullish key reversal on its monthly chart. This also coincided with monthly stochastics establishing a bullish crossover below the oversold level of 20% meaning the loonie both signaled (stochastics) and confirmed (reversal pattern) the new major trend. Theoretical Positions: Investors would’ve bought back short Canadian dollar positions near the February settlement of 0.69125 and gone long at the same level. New buy orders could be placed near the downside target of 0.69991. Sell stops would be moved to below the previous 4-month low of 0.71347 (May 2025). The loonie closed August at 0.72758, up 0.8%.
The Brazilian real (^BRLUSD) extended is uptrend to a high of 0.18579 before closing August at 0.18417, up 3.2%. Theoretical Positions: Investors likely bought at the new 4-month high during March and April, putting the position at an average of roughly 0.17815. Additional positions might’ve been bought during June at the new 4-month high of 0.17876 raising the average long to approximately 0.17835. Sell stops would be below the previous 4-month low of 0.17265 (May 2025).
