Currencies

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, and again during September, falling to a low of 96.22 before rallying to close the month at 99.78, down 0.08 for the month. 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. Some may have been stopped out on the spike low during the announcement of a 25-basis point rate cut on September 17.

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, and again during September, hitting a high of 1.19186 before closing the month at 1.17335. For now, I continue to see this as a downtrend, but will keep a close eye on it. Theoretical Positions: Investors could’ve liquidated previous longs and gone short the euro near the July close of 1.1415 or higher.

The euro/Canadian dollar (^EURCAD) looks to have erased the bearish spike reversal from July during August, then extended its major uptrend during September to a high of 1.63715. The EURCAD closed the month at 1.6332, up 1.7%. 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. It’s possible traders might’ve gone long near the August settlement of 1.60599. If so, sell stops would be below the previous 4-month low of 1.55747 (June 2025).

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. The loonie closed September at 0.71838.