The US dollar index ($DXY): The $DXY extended its major (long-term) uptrend to a high of 110.18, its highest level since November 2022. However, the $DXY closed January at 108.37, down 0.12 for the month. From a technical point of view this would be viewed as a bearish spike reversal. But the question remains if classic technical analysis matters anymore*. For the record, the previous 4-month low is down at 100.70 from October 2024. However, monthly stochastics completed a bearish crossover above the overbought level of 80% at the end of January, signaling a move to a major downtrend could be seen over coming months. Theoretical Positions: It’s possible long-term investors bought near the November close of 105.78 in early December based on that month’s new 4-month high. If so, these positions might be lifted near the January settlement based on the completion of a bearish spike reversal.
The Euro (^EURUSD): The flip-side of the US dollar index is the euro. Here we see a new low of 1.017766 was posted during January before the euro closed at 1.03595, up fractionally for the month. This coincided with a bullish crossover by monthly stochastics below the oversold level of 20%. From a technical point of view, then, euro both signaled (stochastics) and confirmed (reversal pattern) a new major uptrend. Theoretical Positions: It’s possible long-term investors sold the euro during November, either at the breakout point of 1.078 or the November settlement of 1.08836 during in early December. If so, these positions would be bought back and new longs established near the January close of 1.03595 with sell stops below the January low of 1.01776.
The euro/Canadian dollar (^EURCAD) looks to be in a major sideways trend. Theoretical Positions: Traders are most likely on the sidelines at this time. Buy orders may be above the previous 4-month high of 1.51711 with the EURCAD hitting 1.51700 during January before closing the month at 1.50558.
The Canadian dollar (^CADUSD) is one of the few currencies showing a clear major trend, in this case down. January saw the loonie extend its major trend to a low of 0.68543, within sight of its previous major low of 0.68170 from March 2020. Theoretical Positions: Traders might’ve gone short the Canadian dollar as it hit a new 4-month low below 0.71708 during November.
The Brazilian real (^BRLUSD) moved into a major uptrend as it completed a bullish 2-month reversal during January. However, this is not a reliable reversal pattern meaning the real could fall back to a test of its December low at 0.15832. Theoretical Positions: Traders might’ve gone short the real as it took out previous 4-month lows since the breakout during April 2024. Buy stops might be placed above the previous 4-month high of 0.18474.
*I’ll be a guest on Barchart’s Market on the Close program with John Rowland Friday, February, 7 talking about this subject. See the next Weekly Schedule for more information.
