DXY (US Dollar Index) Another Double Top Play
Finally getting their act together – with the Trump administration now proposing a $ 1.2tn fiscal stimulus package (with $ 1000 checks supposedly to go out within two weeks), the Fed reinstating a commercial paper funding facility, and the UK also announcing a GBP330b aid package for Covid-19 hit package, this was sufficient to send the USD higher, S&P500 +6% and the UST bond market buckling overnight. The 10- and 30-year bond yields shot up more than 36bps to 1.08% and 1.69% respectively in its biggest one-day sell-off since 1982. The US also plans to keep markets open but is considering shorter hours.
Elsewhere, Italy and Belgium have banned short-selling in their equity markets for three months and until 17 April respectively, and European leaders have agreed to restrict most travel into the continent in an unprecedented move. With more countries effectively shutting down their borders and practising social distancing to slow down the pace of Covid-19 transmission, the impact on the global economy may be more severe and requiring that fiscal prudence rules be ignored for the interim.
The broad DXY continues to push higher despite a rebound in risk assets. The greenback rose against all G4 counterparts, and the DXY index now retesting the 100.00 resistance. The larger risk-off environment has effectively translated to outright USD strength in the FX space for now.
Extreme volatility in financial markets drove a massive flattening in overall exposure to the USD over the past week, according to the latest CFTC data. The aggregate USD long exposure fell by nearly USD14.5bn in the latest week’s data, leaving speculative accounts with an effective net USD long of just USD539mn, the smallest USD bull position since 2018.
From a technical & trading perspective the US Dollar has seen a surge higher squeezing nascent short positions. We are now testing a potentially pivot double on the daily time frame, from levels that produced the prior weekly double top reaction area. Just above current levels there is also a monthly trendline at the 100.50 level as referenced in the previous Chart of the Year analysis. On a triple time frame approach D1,H4 & H1) the charts are suggesting that price is potentially completing a cycle which at a minimum should deliver a corrective pause in the current advance this should feed into G4 FX notably the EURUSD as discussed in yesterday’s analysis. A two day close above 100.50 would negate the corrective thesis and likely see an injection of upside momentum targeting an initial test of 102.00 and potentially much higher with a measured move target of 120
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.