US Dollar V Emerging Markets Currencies
Whether the US Dollar is bullish or bearish pretty much depends on what part of the world you reside. The contrasts are unusually stark as the Dollar soars against the Canadian and Australian Dollars whilst sitting at yearly lows against the Euro and Pound. There are also contrasts in the Emerging market space, but what is clear is that some have soared way beyond there annual targets. When this happens so early in the year, this sets them up for what we call a slingshot move in the opposite direction. The further they have extended one way, the more violent the move the other.
Looking at the Dollar Index itself, its skewed weighting against the Euro means that is largely meaningless as a global benchmark. However, with the French election coming this weekend it is worth just remembering the key levels for next week on both.
On the Dollar Index the recent slide has seen price hold the final and key monthly support (blue line) at 0.9854. It needs to avoid a weekly close below this point in order to allow a rally to develop.
The Eurodollar is trapped at two weekly resistances (black lines) and its semi annual target (purple dash). If it breaks up the next target is the 1.1100 yearly level, but note that after that, resistance is way up at 1.1617.
Any knee jerk move on Monday will have to be watched carefully but there is no doubt that US Dollar downsides risks exist if a breakdown holds through next week.
Turning to some Emerging Currencies what stands out is how weak the Dollar has been against many.
In order to measure over-extension we use the Range Relativity study which creates monthly up to yearly limits of range. Over extension occurs when monthly (blue) and Quarterly Ranges (pink) move beyond the semi annual (brown) and yearly upper or lower target (red).
By far the most overextended is the Taiwan Dollar. It is now into its fourth month below the annual downside target in what has been a relentless slide. There is a major zone of support just below the recent lows as the monthly and quarterly levels converge.
Supports and Resistances are also derived from Peak Expansion which takes weekly and monthly swing points and qualifies which ones are relevant. The chart shows that the recent low has moved weekly support to the bottom of the trend.
The catalyst and trigger point for a sling shot move up is when price closes above the weekly upper Range Relativity level (blue dash) at the end of any given week. Note that since the downtrend began it has never managed to do this.
Next is the Mexican Peso. This has now been below its annual target for 3 months but has stabilised.
Expansion shows more importantly that what was a weekly resistance has moved below price and formed support. The currency has come very close to closing above the weekly Relativity but has not done so yet.
The Indian Rupee weakened last year on the internal currency controls but has reversed that trend this year. It has now extended for 2 months and there lies a monthly and quarterly zone of support below the recent lows.
The shift from what was weekly resistance switching to support is the same as the Peso, but price has still to close above the weekly relativity high.
The Zloty topped out last year at its annual target and having respected this year’s lower target in March, it has slipped below it, stopping at the quarterly lower level.
Note that even when there have been counter trend rallies, price could not close above the weekly higher threshold. Support has not shifted to below price as of yet.
The Russian Ruble has begun the reversal process in earnest. It broke its annual target and has now returned to that level.
With just one day to go to the end of the week price is confirming a sling shot move and call to action if it closes above the Expansion based weekly resistance and its Relativity high.
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