$USDMXN Archives | Opportunity Identified

Back in February, we highlighted some important developments which could impact the months ahead. One of those developments was the consolidation of the U.S. Dollar. Back then, we wrote:

Another important development is the consolidation of the U.S. Dollar… the US Dollar broke out above previous resistance in the 4th quarter of 2016. On the daily chart of the U.S. Dollar, we’re compressing between $99 and $101. A break above the upper green trendline would signify a resumption of the uptrend started in 2014. And if price moves below $100, there is no reason to own the greenback. If the Dollar moves down through this important level, we could have a false move on our hands…

Here’s the U.S. Dollar back on February 27th:

The power of using price charts is we can identify where demand and supply dynamics change and use these levels to manage risk, the most important part of being a market participant. We identified the $99-100 level as important support. Here’s the updated chart:

While recording new highs in early January, the U.S. Dollar Index was also logging lower highs in 14-Period RSI (our favorite momentum indicator). New highs and lagging momentum can sometimes signal limited upside continuation. In this case, the divergence in momentum was an important tell for the demand of U.S. Dollars. This was confirmed when buyers could not keep the Greenback from breaking $99, a significant level over the past 2.5 years. You can see this important level better when we step back to a bigger picture timeframe. It’s always important to look at the bigger picture. Here’s the weekly chart of the U.S. Dollar Index dating back to 2010:

The importance of the $99-100 level can be clearly seen. Sellers showed up twice at that level in 2015 making the breakout at the end of 2016 notable. However, since the highs in January, selling pressure has returned. The increase in supply has created a false move. From false moves come fast moves in the opposite direction. The fast move in the opposite direction is taking place right now. We don’t need to predict. Price shows us there’s no need to be a buyer of U.S. Dollars right now.

In conclusion, the Almighty Dollar, an important piece of the market puzzle, needs to prove itself before we’d consider a long position. If the selling continues, we’d expect buyers to show up near the $92-93 handle, an area where they showed up in the past (see green annotated arrows in the chart above). Since many market pieces are priced in Dollars, this current move could have an impact across a variety of assets, including commodities and foreign equity markets.

As always, you can get real-time updates and commentary about this development and many more opportunities here: @360Research

AND, you’ve got FREE access to an investing tool we’ve created, The Ultimate ETF Cheat Sheet. Click this link to get your FREE easy-to-use resource guide for all your ETF needs.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in this blog. Please see our Disclosure page for full disclaimer.

The currency markets are the largest and most actively traded markets in the world with $5,100,000,000,000 worth of trading each day. [1] That’s trillion with a capital “T”. With foreign exchange being used by institutions large and small in the most liquid markets in the world, it makes sense to pay attention to them for clues. These markets are impacted by the same forces of supply and demand as any other market, like stocks, bonds, and commodities. Each transaction in the currency market involves two different trades: the sale of one currency and the purchase of another. The two currencies involved in the trade are known as a pair. While it’s possible to quote a price in any currency pair, in the interbank market (which is the ultimate generator of foreign exchange liquidity) most currencies are only tradable against a small number of other currencies – most commonly the U.S. Dollar. There are eight major pairs. As shown below, the three biggest currencies responsible for most of the volume are the U.S. Dollar, European Union Euro, and Japanese Yen. We’re going to focus on those. In addition, we’re going to see what’s going on with one of the exotic currencies, the Mexican Peso. All three of the pairs under review will involve the U.S. Dollar, the world’s “hub” and reserve currency.

First, let’s start with the largest pair, U.S. Dollar / Euro (USD:EUR). Here’s a weekly chart of the pair going back 10 years.

Right away, we can see the U.S. Dollar’s strong rally against the Euro in 2014. Since the beginning of 2015, however, the pair has been locked in a range with equal buying and selling pressure. Earlier this year, it appeared the Dollar was on the verge of breaking out again, but sellers stepped in and drove it back down in what could be a false move. From false moves come fast moves in the opposite direction. The USD:EUR still has a series of higher lows in place. That would change with a close below 0.92 and cause a breach of the upward trendline (annotated in green). Such a move could see the Dollar weaken to the point of revisiting a prior area of support near 0.87.

Next up, the U.S. Dollar / Japanese Yen (USD:JPY) looking back 10 years.

After a strong rally from mid-2016 through early 2017, the Dollar has stalled and moved lower after kissing the upper trend green trend line. After establishing another in a series of lower highs, the USD:JPY is at a major level of support near 111. A sustained break below 110 could trigger further Dollar weakness down to 100, a major level of supply and demand over the past decade.

Finally, the U.S Dollar / Mexican Peso (USD:MXN). Not one of the main currency crosses, but insightful nonetheless.

Here we have the world’s reserve currency potentially breaking down versus a historical weak currency. That’s notable. Since early 2015, the U.S. Dollar has been ripping versus the Peso. However, the U.S. Dollar peaked in early 2017 and has reversed down just as it did against the aforementioned major pairs. Across the currency spectrum, since January 1st, we’re seeing the Dollar weaken. See below.

A picture is worth a thousand words. Since the beginning of 2017, the Almighty Dollar has been weakening against almost the entire currency complex. So what’s the big deal? Well, since much our world (including stocks, commodities, goods, and services) is priced in Dollars, this development could provide some significant opportunities in many different asset classes. What specifically? That’s for another post. What do we know for sure? Price knows more than we do.

As always, you can get real-time updates and commentary about this development and many more opportunities here: @360Research

AND, you’ve got FREE access to an investing tool we’ve created, The Ultimate ETF Cheat Sheet. It’s an easy-to-use resource guide.

[1] Source: Bank of International Settlements, 2016 survey

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