Monthly Analysis: Currencies

2023-02-01T10:24:05-06:00February 1st, 2023|Monthly|

The US dollar index ($DXY) extended its major (long-term) downtrend to a low of 101.50 during January before closing at 102.10, down 1.42 for the month. The next downside target is at 98.97, the 61.8% retracement level of the previous uptrend from 89.20 (January 2021) through the high of 114.78 (September 2022). With weekly stochastics showing the index to be sharply oversold, it would not be surprising to see a secondary (intermediate-term) uptrend develop, a move that would be considered Wave B (second wave) of the 3-wave major pattern. Theoretical Positions: Traders may have shorted the dollar near the September and October closes of 112.00. New or additional sales could be made if/when the dollar moves into a Wave B rally.

The euro (^EURUSD) extended its major uptrend to a high of 1.09295 during January. As the flip-side of the US dollar index, there euro looks poised to move into a secondary downtrend, a move that would be considered Wave 2 of the major 5-wave pattern. Weekly stochastics show the euro to be sharply overbought. Theoretical Positions: Traders could be long the euro from the September close of 0.98024 based on a bullish crossover by monthly stochastics at the end of that month. Additional longs might’ve been established in November when the euro moved to a new 4-month high. Longs could be added on a Wave 2 selloff.

The euro/Canadian dollar (^EURCAD) also extended its major uptrend during January and is also in position to see a secondary downtrend develop. It should be noted the EURCAD closed lower for the month, a possible signal the trend could soon change. Theoretical Positions: Traders could be long from the August close of 1.31904. Additional longs might’ve been established with the new 4-month high beyond 1.36955 during November. This puts the average long near 1.3443. Traders will be careful with these long positions given the bearish spike reversal posted during January.

The Canadian dollar (^CADUSD) tried to build some bullish momentum during January, closing at 0.75148 and just off its monthly high of 0.75193. With weekly stochastics in an overbought position, the CADUSD secondary (intermediate-term) trend could soon turn down, Wave 2 of the major (long-term) 5-wave uptrend, and retrace much of the Wave 1 rally. Theoretical Positions: Traders could be long from the October close of 0.73395 with a stop below the October low of 0.71550.

The Brazilian real (^BRLUSD) remains in a major sideways trend. Theoretical Positions: Traders might be selling options to take advantage of the range between July low of 0.18131 and August high of 0.19949. Otherwise, new positions will depend on a breakout of either side of the range.

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