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Weight of the evidence increasing for a USD turn

Ever since the Fed has turned dovish, the USD rally has slowed in momentum and the US 10Y yield hit a fresh 2019 low on Thursday. The US-China trade war is seeing investors flee to the safety of bonds as global economic growth expectations are being scaled back. The possibility of rate cuts by the FED is gaining traction and the USD may be ready for a sizeable decline. We will be examining below various charts to see how strong a USD reversal possibility exists.

1. USD Index Daily Chart – Rising wedge pattern and short term double top pattern emerging at the 61.8% Fib

The Dollar Index daily chart below shows that it has reached its 61.8% Fib retracement of the ’17-early ’18 decline and is tracing out a rising wedge pattern (bearish). On Thursday the Dollar Index had a key outside day at the 98.06 high as the 10Y US yield hit a fresh 2019 low. Friday saw the Dollar Index weaken further and could potentially be setting up a short term double top reversal pattern. A break below 96.81 (13th May low) validates this short term reversal pattern and will likely bring a test of its up-trending T-line currently cited near 96. However, failure to break below 96.81 may bring a retest of the Thursday 98.26 high and could see further strength.

2. USDCHF (Swissie) Daily Chart – Continues to make lower lows and has tagged its long term mean

The Daily Swissie chart below shows that it has put in a top at the end of April and continues to make lower lows. Price has broken below its cloud and is awaiting a Chikou span (lagging line) break below the cloud to confirm the bearish trend. Similar to the USD index the longer term pattern is a rising wedge (bearish). Watch 0.9970 this week, as it is a confluence of the long term mean and cloud support for the Chikou Span. A confident break below 0.9970 is likely to see the downside accelerate and bring a test of its up-trending T-Line.

3. EURUSD Daily Chart – The missing piece of the puzzle but seems to be ‘waking’ up

Inherently the EURUSD has a strong inverse correlation to the Swissie (EURUSD goes up USDCHF goes down and vice versa). Currently, the USDCHF weakness has NOT been confirmed by EURUSD strength and a reason for concern, however, the EURUSD caught a decent bid to close out the week.