The greenback has been on a tear over the last 3 weeks, advancing from a low of 88.95 on 4/17 to a high of 92.755 hit on Friday. However, there are numerous signals that a intermediate term Top is being made, or the end of a “Wave 1” advance.
1) This 3.8 (full) point advance ranks in the 95th percentile of all 15 day rallies going back to 2004.
2) 3 of the last 6 trading days have seen reversal or negative daily candles. Please click here:
3) This rally is approaching major 3.5 year prior support/ now turned resistance zone around the 93 level.
4) On a daily chart the Dollar has retraced to the 62% Fib level of the Nov 17-Feb 18 down leg
5) The 18month Commercial Net Position Score is high @ 88% which has historically lead to negative price distribution over the following 20 Trading days. Going back to 1992 there have been 197 instances where the Net Comm position scored 88% or higher. The 70th Percentile move during the following 20 trading days is 59 cents up vs (81) cents down for Bull/Bear odds of 3:4 in Bears favor.
While this short term bearish case is manifesting, the Longer term view is painting quite a different picture.
Please click on this weekly DX chart.
There are powerful signs that the bottom for 2018 may be in already for the DX.
1) Since the Feb 16th low we have seen a series of higher highs and higher lows.
2) There was a convincing move above an important prior low support level / turned resistance at 90.875.
3) Convincing move above the 16 month Down Trend Line (DTL) that has been in force since Jan 2017. This is step 1 of the classic Trader Vic 1-2-3 reversal.
4) Convincing move above the downward sloping 23wk Adaptive Channel. This is the first step towards a “flattening” of the down channel, which precedes an upward sloping channel.
The Dollar is in the process of reversing it’s 16 month downtrend. However, prices move in waves and there are numerous signals pointing to an end of Wave 1 advance. We anticipate weaker prices and a testing period of the 88 level lows over the next few months as the DX consolidates and digests its’ recent sharp gains.
This weakness should provide a tailwind to particular under-performing 2018 commodities, where we are starting to see some signs of life - such as: Silver / Platinum/ Coffee / Sugar. Grains and the Oil complex, which have been the big winners in 2018 thus far may also benefit.