Dollar Index Break Lower: Trades & Forecasts
|Traders,
Last weeks break lower in the Dollar Index (DXY) is likely to usher in a period of DXY weakness. The implications for FX is obvious but it will also impact other asset classes too thereby providing other trading opportunities as well as drivers for FX trades.
Let's take the situation at the most basic level. The break of trend-line support at 96.60 is likely to usher in, at a minimum, a move towards 94.68 and perhaps as a low as 92.12. These levels are based on 2 simple technical analysis observations
- Assuming this is just a correction off the highs, Wave C should extend 161.8% the length of Wave A. Hence the 94.68 level.
- If this is a Wave (2) correction lower, those will typically retrace about 50%-61.8% the length of Wave (1) - that offers up 93.31-92.12
- Roughly a drop of 2-4% from current levels.
Implications for Major FX Pairs:
Remember that most of the major FX pairs will move inversely to DXY. EUR/USD, which makes up 57% of DXY is the most sensitive to DXY movements. Assuming a corresponding 2-4% move in the major FX pairs, we are likely to see these prices in the days/weeks ahead:
- EUR/USD: 1.1571-1.1831
- AUD/USD: .7080-.7200
- USD/CAD: 1.3100-1.2900
Additionally, we will see a continued steepening of the 2/10 yield curve and using historical/quantitative data solid gains in the like of gold, copper and crude oil. These all have major implication for the market at large. These will be some topics I will be tackling in forthcoming articles.
To learn more about Aspen Trading Group and to download "The List of the best trading resources David Floyd recommends", click here
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.