Dollar Index Break Lower: Trades & Forecasts

Dave Floyd Aspen Trading Group

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.

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Author

Dave Floyd

Aspen Trading Group

If he lived anywhere but Central Oregon, where the trails of the Cascades mingle with the warm sunshine and fresh air of the high desert, Dave Floyd would probably be one of those guys who lives and breathes trading and analysis 24/7.

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