Forex: Long Term Outlook For: US Dollar (.DXY) Index

$.DXY

On the 27th of October I said that further near term upside would likely be limited. The market then pushed to a fresh high at 97.80 on 28 October, testing both the Bearish trendline since March, and ceiling of the Bull channel from August, and before stalling.

That action was seen as a near term topping within the extended period of wide ranging since the March high at 100.40. Though viewed as a large correction with eventual new highs above 100.40, there is scope for another month or 2 of this broad chop and even a final down leg below the August low at 92.60 1st (see longer term below).

Near term: the North move from late August occurred in 3 Waves (A-B-C, argues a correction) and may be forming a large falling wedge like pattern since March (they break down into 5 legs), adding to the potential for declines below that August 92.60 low (see in Red on daily chart below).

DXY support before there is seen at 96.50/65 (recent lows, broken highs from September), 95.20/30 and the base of the Bull channel (currently at 94.25/35).

Key resistance remains in the 97.75/90 area.

Bottom line: DXY seen topping from last week’s 97.80 high, with potential for decliners way back to the August low at 92.60 and lower.

Strategy and Position: Still short from the 27 October resell at 96.90 and continue the stop on a close 20 ticks above that Bearish trendline since March, a good overall risk-reward opportunity.

Long term: There is no change in the long held view of an extended frame of wide consolidating (months) from that March high at 100.40, as the market corrects the surge from the May 2014 low at 78.90 (seen as wave IV in the rally from the May 2011 low at 72.70), and with eventual new highs after (within wave V). However as been discussing, more consolidating is favored 1st, ideally into the end of the year before resuming that longer term Northside move.

The seasonal DXY chart is lower into the end of December, long term technicals remain Bearish (still sell mode on the weekly MACD), supporting the view of another few months of broad ranging ahead.

Note:the long mentioned, major support remains just below the August low at 92.60 in the 92.00/25 area (38% Fibo retrace from the May 2014 low at 78.90/wave III and the base of that potential wedge since March).

Markets have a way of eventually reaching these Key areas, “fits” the nearer term view (see shorter term above), and would be a good area to finally complete a more major bottom (see in Red on weekly chart/2nd chart below).

Bottom line: Action from March seen as a large correction with eventual new highs above 100.40, but with scope for as much as another few months of wide ranging/consolidating into the 92.00/25 area before resuming the long term Northside move.

Strategy and Position: With scope at least some further declines below the 92.60 low as part of this larger frame of wide consolidating, would stay with the longer term Bearish bias that was put in place on 26 August at 94.75.

But, with the magnitude of further Southside a question, will be looking to reassess .DXY on further lows

For now .DXY

Near term : short 27 October at 96.90, topping (potentially important topping) seen in process.
Last : short 22 September at 96.25, took profit on 21 October above trend line from 1 October (94.85, closed 95.05, 125 ticks).

Longer term: Bear bias 26 August at 94.75, scope for fall below 92.60 as part of correction since March.
Last: Bear bias 23 June at 95.50 to Neutral on 15 July at 97.15.

By David Solin
Foreign Exchange Analyst

Paul Ebeling, Editor

HeffX-LTN

Disclaimer: The opinions expressed herein are those of the author and not a recommendation to buy or sell specific securities.