The Dollar Outlook: $90 Here We Come?

No Longer In Doubt

A few weeks ago I blogged about the Dollar Index and how it was poised to move, but maybe the market wasn’t sure which way it was going to go. The signs were slightly bullish, the forecast slightly bearish, so the way to trade was unclear. Unclear that is, until the market gave us the next sign. In the bull camp, the DXY was poised to bounce from support, maybe at the $96 level, and may have surpassed the short-term moving average in doing so. A bullish signal. In the bear camp, the outlook for stimulus and rising cases of COVID in the U.S. were pressuring the markets. A move below $95.50 would be the trigger in that case.

Lo’ and behold, what did the market do? It kept selling off and broke below the $95.50 level. For those of you thinking that Trump or Mnuchin will step in to do anything think again. Mostly because they can’t really, do anything, it’s the Fed that does thing with monetary policy. And besides, ultimately, both Trump and Mnuchin want the dollar low so other countries can afford to buy more U.S. stuff. Economic activity, smaller trade imbalances, what they want.

So, back to the chart. The DXY has broken the $95.50 support level and looks like it is heading lower. The ultimate target is in the low $90’s, right around $90 or maybe a hair lower, but don’t think that is going to happen in a straight line. The candles are bearish and the indicators are too but that doesn’t mean that news, data, or simply market sentiment won’t provide support at certain levels or even cause a bottom. The first target is near $94 and I expect to see a bounce at least if not a small rebound. Depending on how long it takes, or even if, support to break down the next target is in the $91.50 to $92 range and may be reached quickly.

While the long-term target is the $90 level it may be months before it is reached and, when it is reached, price action may not stay down there very long. Traders should use any upticks or advances in prices as opportunities to sell the dollar with the idea of taking profits at the next support target.