From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

For more than a year, most of the market and many of our risk ratios have been a trendless mess.

High Beta vs. Low Volatility, Copper vs. Gold, and our custom Risk-On vs. Risk-Off ratio have all gone nowhere since the beginning of 2021.

The Australian dollar/Japanese yen also falls into the range-bound category, as the risk-on pair looks a lot like the ratios we just mentioned.

But AUD/JPY has been showing resilience the past few weeks and is currently challenging the upper bounds of its multi-month range.

Since most risk appetite indicators aren’t giving us much in the form of new information these days, an upside resolution from AUD/JPY would be a major development. 

It hasn’t happened yet, but things are certainly setting up that way.

In today’s post, we’ll dive into one of our favorite risk-on/risk-off gauges – the AUD/JPY cross - and discuss what it’s currently suggesting about risk-seeking behavior.

Here's a dual-pane chart of the AUD/JPY pair and copper futures:  

...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

US dollar strength is broadening as global currencies lose critical levels against it.

Last week, we outlined crucial support levels in the EUR/USD pair. Those levels have since given way, as sellers have taken control of this major forex cross.

Today, we’re going to highlight two other USD pairs that recently sliced through key levels, further paving a path of least resistance that favors the US dollar.

First up is the British pound, GBP/USD:

The pound has been carving out a distribution pattern for the past year.

Yesterday, it completed that pattern by violating a key level of former resistance turned support found at the 2021 lows around 1.32.

Momentum is also registering overbought conditions, confirming the recent breakdown.

As long as it’s below those former lows, we...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Currency markets are reacting to the war that’s broken out in Europe.

In the past four trading sessions, the Russian ruble has dropped more than 1,000 pips against the US dollar.

And, with fear growing that these initial days of fighting will turn into a protracted conflict, weakness is striking the euro as well.  

Let’s take a look at the EUR/USD cross and outline the levels we’re monitoring in the coming weeks and months.

Here's a daily chart of the EUR/USD going back to the pandemic lows:

After completing a large distribution pattern last September, the EUR/USD pair has been consolidating for the past several months and trading in a range between 1.1483 and 1.1121.

However, as of this writing, it’s undercutting the lower bounds of this continuation pattern and printing fresh 20-month lows. 

A decisive close below the January low of 1.1121 suggests the path of least resistance is lower for the euro. We want to be short against...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Despite the trendless nature of the major forex pairs, there’s still plenty of information coming from the exotics right now – particularly emerging market currencies.

The Chilean peso – and its relationship to copper – now has our attention.

Let’s take a look.

Here’s a chart of the USD/CLP cross overlaid with Copper Futures $HG_F with a correlation study in the lower pane: 

Chile is the world’s largest copper producer, which explains the strong negative correlation between the USD/CLP pair and the price of copper.

You can see this relationship in the chart, as USD/CLP tends to peak and roll over at the same time copper bottoms out, and vice versa. 

The USD/CLP now appears to be topping and turning lower after finding resistance at its 2020 highs. USD/CLP also peaked at these levels after the COVID crash, which coincided with the start of copper’s rally to new all-time highs. ...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Consolidation and range-bound action have dominated the currency market since late last year.

While commodities and cyclical stocks -- especially energy -- continue to catch a bid, commodity-centric currencies like the Australian and Canadian dollars fail to show any definitive signs of strength.

At the same time, the US dollar isn’t doing much either, as the US Dollar Index $DXY has been chopping sideways for several months.

Long story short, indecision is the overarching theme for forex markets at the moment.

One forex pair that does an excellent job of illustrating the trendless nature of these markets is the AUD/JPY.

Here’s a chart of the AUD/JPY cross:

As you can see, the currency market’s classic risk barometer has gone nowhere for almost a year. It’s currently trading right in the middle of a wide range.

While this kind of prolonged sideways action can be frustrating, it makes sense given how bifurcated markets are right now...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The US dollar can’t catch a bid.

Since briefly reclaiming its November highs last month, it’s been nothing but down and to the right for the US Dollar Index $DXY.

Many global currencies have reacted by catching higher – especially the euro. But commodity-centric currencies – like the Canadian and Australian dollars – have had a more muted reaction. We think that’s likely to change in the coming weeks and months.

With interest rates on the rise around the world and crude oil prices pushing above 90, we think it’s just a matter of time before we begin to see some real strength from these currencies – especially if we see a sustained downtrend in the USD.

Today we’re going to highlight one of these forex pairs, as we think it’s poised for a major move. Let’s talk about the USD/CAD.

Here’s a weekly chart of the USD/CAD cross:

...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Commodities and cyclical assets have remained resilient, defying headwinds from the US dollar for nearly a year. 

But the US Dollar Index $DXY is sliding lower as evidence mounts in favor of further weakness…

Could those headwinds soon fade away?

Today, we’re going to highlight some critical developments and discuss what they mean for the US dollar, stocks, and commodities in the weeks and months ahead.

Let’s dive in!

First is a chart of the US Dollar Index $DXY:

Its inability to hold above the November 2021 highs screams "failed breakout!"

After undercutting these former highs on Monday, we saw some downside follow-through on Tuesday. Two data points supporting a bearish resolution are commitment of traders (COT) positioning and momentum.

In the middle pane, we’ve highlighted commercial hedgers holding a stretched net short position...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Risk assets are on the ropes after taking a series of heavy hits last week.

Equities have been a sea of red across the board as selling pressure broadens out. Growth continues to collapse, and even many of the latest leadership groups –  like banks – are failing to hold their breakouts.

When we look inside the stock market, there's certainly a bear market feel to the price action in recent weeks. For example, offensive areas are being sold indiscriminately while defensive sectors make new relative highs. 

But when we look outside the stock market, the story is very different. Despite the volatility, we’re still not seeing much of a bid in traditional safe-haven assets.

In today’s post, we’ll focus on the Japanese yen. But it’s the same story for gold and Treasuries.

Here is a look at all three. From top to bottom, this is the Gold ETF $GLD, the US Treasuries ETF $IEF, and the Japanese yen $JPY:

...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

What started out as a potential bullish continuation pattern in the US Dollar Index $DXY has turned into a near-term top.

After weeks of failing to hold breakouts on an individual currency basis, the tight coil in the DXY finally resolved lower.

The brief reprieve in USD strength was immediately felt across markets last week, with cyclical/value stocks and procyclical commodities catching an aggressive bid.

Now that the headwinds associated with dollar strength appear to be easing, will risk assets enjoy a tailwind in the form of sustained USD weakness?

Or was this just the latest fake-out from the DXY?

Let’s take a look at a couple of charts and highlight the levels we're watching in the coming weeks and months.

First up is the US Dollar Index:

After the...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

There's been a subtle risk-on tone in recent weeks. With each passing day, it's been spreading to more and more markets and charts.

Rates are rising around the globe. The underlying uptrend in commodities is intact and looks ready for another up leg. Our equal-weight commodity index is resolving higher from its current range. And cyclical stocks such as energy and financials are breaking out to new highs.

All of these events speak to a growing risk appetite and support higher prices for risk assets.

Although, two areas where we aren't seeing such clear evidence that risk-seeking behavior is re-entering the market would be currencies and our intermarket ratios.

The AUD/JPY cross is still stuck within a range. High-yield bonds $HYG relative to their safer alternatives -- US Treasuries $IEI -- failed to hold their recent highs. And the copper/gold ratio is a hot mess.

We would expect to see decisive upside resolutions from these charts if investors are positioning for another leg higher...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The rally in the US Dollar Index $DXY is stalling out.

With each passing day, dollar internals are weakening, and the prospect of a bullish resolution from the current continuation pattern in DXY is diminishing. We expect these patterns to resolve quickly. And when they don’t, that’s information.

Some other things worth noting are that commercial hedgers hold a large short position in DXY futures and the near-term bearish trend for individual dollar crosses is expanding (up 20% from last week to a staggering 80%).

The bottom line is evidence continues to stack against the USD.

With that as our backdrop, let’s check in on a long USD trade that was triggered in November and outline how we want to navigate the coming days and weeks.

Toward the end of the year, we covered a couple of key levels that the dollar needed to clear to increase our conviction in its current...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

As 2022 approaches, the latest evidence from currency markets suggest the US Dollar Index $DXY could be stalling out.

Whether it resolves higher from the current continuation pattern is a key question with broad market implications. While dollar strength has been a headwind during the second half of 2021, we think it cools off coming into 2022.

In our view, there's a good chance a weaker dollar will actually help put a bid in risk assets in the near future. This hasn’t been the case in a while, so let’s discuss what’s changed to make us feel this way.

Notice the short-term weakness in our US dollar trend summary table:

The percentage of short-term bearish readings has jumped from 13.37 to 60.00 over the past two weeks. This tells us there's been a significant drop-off in the dollar’s strength versus its peers, even as the DXY coils in a tight bull flag.

Bulls want to see the dollar get stronger beneath the surface to support a resolution...