From the Desk of Ian Culley @IanCulley

It’s messy out there.

The CPI data came in a little warmer than expected today. And currency markets aren’t quite sure what to make of it.

Despite the overarching range-bound action and intraday indecision, I continue to find trade setups with well-defined risks.

Today, I’ll outline another vehicle to short a potential falling dollar – the Swiss franc.

I prepared to get long the USD/CHF pair last October. But the trade never materialized. Instead, it caught lower as the USD downtrend picked up steam in early November.

Fast-forward a few months, and I’m ready to short the USD/CHF pair.

Before we break down the setup, let’s zoom out:

The USD/CHF pair has remained in a structural downtrend since the 2000 dot-com bubble peak. We can interpret the past decade as a bearish consolidation within an ongoing downtrend. 

Some...

From the Desk of Ian Culley @IanCulley

The US dollar index $DXY has some extra pep in its step after posting three consecutive daily gains.

In fact, the past few days constitute its largest three-day gain since the index peaked in late September.

I think it’s safe to say the long-awaited USD bounce has arrived. The question now is whether it will turn into a sustained rally.

No one knows, of course. But these next two levels will help us prepare for an impactful dollar advance…

First, let’s zoom out…

The early 2017 high of 103.82 marks the first significant hurdle for the dollar index. Let’s call it 104.

If the DXY reclaims this key level, the conversation turns to the possibility of a  failed breakdown. For now, it’s simply pulling back to retest a critical level of former resistance.

If and when DXY bounces back above 104, that brings us to the second hurdle…

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From the Desk of Ian Culley @IanCulley

Everyone wants to know where the dollar is headed next.

It’s great investors are showing interest in the dollar, while understanding the impact it has on risk assets at the moment. 

But I have no idea where the dollar is headed. No one does.

Regardless, I can still form a framework to help make the best logical guess despite an incomplete data set. That’s what we do at All Star Charts!

So let’s recap three points I’ve made regarding the dollar in recent months that I believe hold the greatest weight…

The Time and Place for a Bounce

Given strong seasonal tailwinds and a critical shelf of former highs acting as potential support, the likelihood of a dollar bounce last month seemed probable…

The US Dollar Index $DXY has enjoyed the best returns...

From the Desk of Ian Culley @IanCulley

I haven’t ruled out a US dollar bounce. 

But it seems less likely with each passing day.

Other major global currencies are regaining lost ground following a year dominated by dollar strength. It shows in the US Dollar Index $DXY as it continues to slide back within its prior multi-year range. 

Lower lows for the DXY will not instill confidence in dollar bulls. Meanwhile, savvy investors should take its performance as a signal to buy other currencies.  

Here are two of my favorite setups from the forex markets…

Check out the GBP/USD pair on the verge of completing a multi-month reversal formation:

This chart has the hallmarks of a classic inverted head and shoulders with a neckline at 1.2425 (the Dec. 14 close). That’s our risk...

From the Desk of Ian Culley @IanCulley

Perhaps you’ve noticed that I don’t use moving averages.

For starters, I don’t like the way they look.

They muddy the pristine waters of price. And if I can't pick up on the underlying trend by looking at price action, then god help me.

Regardless, I do my best to stay open-minded. Everyone has their own process. Mine works for me, but that doesn’t make it superior by any stretch.

So, when Grant @GrantHawkridge dropped a US Dollar Index $DXY moving average crossover study in our analyst Slack chat last weekend, I couldn’t resist.

It wasn’t because it highlighted the “death cross” (when a 50-day moving average falls below a longer-term 200-day average), which always stirs a great deal of excitement.

Nor was it what his study suggests for the dollar in the coming weeks and quarters. 

Rather, it’s what it implies for US stocks.

Check out the chart of the DXY with a 50-day (blue line) and a 200-day simple moving average (red line):

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From the Desk of Ian Culley @IanCulley

Is the dollar going to finally bounce?

As I pointed out last week, if there was ever a place or time – it's’ now! But that doesn’t mean it’ll happen…. 

One thing is certain: The markets don’t care what I think. This includes the US dollar.

But when I look at a chart of the EUR/USD, the largest component of the US Dollar Index $DXY, it’s running into a logical level of resistance.

How the euro reacts to current levels will set the tone for the dollar in the coming weeks and months.

Check out the daily chart of the EUR/USD:

First, let’s break down momentum in the lower pane.

The 14-day RSI has broken out of a bearish momentum regime, printing a bullish overbought reading last month. This indicates momentum has shifted in...

From the Desk of Ian Culley @IanCulley

I’m not big into seasonality.

I pay attention to it, of course. But it’s not in my top three data points after price. 

Don’t get me wrong, seasonality brings context and enhances awareness of any given market – which should be a priority for any trader or investor.

I have multiple almanacs on my desk, including the Stock Trader’s Almanac by Jeff Hirsch and Christopher Mistal and the Spectra Markets Trader Handbook and Almanac by Brent Donnelly and Justin Ross.

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From the Desk of Ian Culley @IanCulley

What a year for currency markets!

The USD/JPY tested its 1998 highs marked by the Asian Financial Crisis. The British pound revisited its all-time lows. And the euro fell below parity versus the US dollar for the first time in twenty years.

But where does that leave the King Dollar heading into Q1 2023 now that it has fallen almost 10% off its September peak and many global currencies have reclaimed key levels?

Let’s turn to the charts for some answers…

First, take a look at the US dollar index $DXY:

The dollar index is reaching a crucial level marked by the 2016 and 2020 highs – a logical spot for it to bounce. Honestly, I’d be surprised if it doesn’t! 

Yet, the DXY seems stuck in the mud. That’s information.

Here’s a look at the daily chart:

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From the Desk of Ian Culley @IanCulley

What do you do when the party gets out of hand?

You raise the roof!

That’s what the Bank of Japan (BoJ) did yesterday as its former yield curve control policies became untenable. After intervening to keep its 10-year yield below 0.25%, it shifted the ceiling to 0.50%. 

Naturally, the yen responded in earnest. It posted an explosive rally following the BoJ policy shift, gaining more than 500 pips against the dollar. 

But where does that leave the USD/JPY heading into 2023?

From the Desk of Ian Culley @IanCulley

The forex and futures markets will provide bountiful ways to trade a weakening dollar.

Unfortunately, some of our initial attempts to capitalize on dollar weakness have fallen flat. 

We’re not surprised – especially since market conditions remain challenging. But that won’t deter us from moving forward and finding the best trade setups.

As always, a viable trade comes down to two critical components: a well-defined risk level and a risk/reward profile heavily skewed in our favor.

And, of course, you know how much we like relative strength. 

That brings us to a vehicle that challenges the definition of "currency." 

That's gold.

From the Desk of Ian Culley @IanCulley

The US dollar Index $DXY is running into support at a shelf of former highs. 

How it reacts will influence how stocks fare heading into the year-end.

Let’s check out three charts and three levels to monitor.

From the Desk of Ian Culley @IanCulley

The 2020 V-shaped recovery has warped investors’ brains. 

But this is nothing more than recency bias. In reality, bottoms are a process, not an event. 

Don’t fall victim to what’s easy or comfortable. Instead, let’s focus on the facts.

Markets continue to send mixed signals, testing the resolve of even the most disciplined investor. Rather than fight the trend or trendless nature of the markets, I prefer to identify evidence that supports the next directional move.

And there’s one insightful chart atop my deck regarding the direction of the US dollar.