Okay, let’s try this again. If you remember, at the end of last September I talked about the change in long-term trend of the US dollar index in “As Bullish as Bullish Gets”. After posting this analysis, the USDX quietly consolidated during October before falling to new long-term lows in November, December, and January. However, after hitting 89.20 to start 2021, it’s lowest mark since 88.94 during March 2018, the USDX rallied to close at 90.53. Not only was this up 0.61 from the December close, but all enough to establish a confirming bullish crossover below the oversold level of 20% by monthly stochastics. The initial crossover occurred at the end of September 2020. All of this is a long way of saying, from a technical point of view, the major (long-term) looks to have turned up again. For the record, at the end of September the USDX had established a bullish key reversal, one of the more reliable trend change patterns I look for. During January, the USDX looks to have a less reliable bullish spike reversal.
But just as was the case this past fall, winter-time fundamentals for the US dollar remain bearish as US Fed Chairman Powell and new Treasury Secretary Yellen have both reiterated no hurry to start raising interest rates any time soon. On the other hand, US treasury futures remain in a major downtrend indicating traders are expecting interest rates to start moving higher over time.
So how do we play this technical pattern, again? If I’m buying the greenback, I’d be trying to do it near the January settlement of 90.53 and putting a stop just below the January low of 89.20. Next support is at the February 2018 low of 88.25, then the next downside price target of 87.25.