U.S. Dollar – Andrew Thrasher

Will Support Hold Up in the Dollar?

Posted on June 6, 2013 by Andrew Thrasher, CMT

While the dollar has been in an uptrend for the better part of the year, the currency has been getting squeezed over the last couple of weeks. First lets take a look at some of the signs that poked their head up to some possible dollar weakness and then we’ll discuss some support levels in $UUP.

First we had the divergence in the Relative Strength Index. Earlier this year we broke above 70 to get an overbought status, which isn’t the yellow flag in and of itself. What was worrisome was when the PowerShares US Dollar Bullish ETF ($UUP) broke to a new 2013 high, momentum was unable to push above 70.

In the bottom panel of the chart we have the On Balance Volume. This indicator can be helpful in seeing if buying volume is outpacing selling volume. Just like the RSI, On Balance Volume put in a negative divergence as $UUP broke out to the upside. So as price was continuing to strengthen both momentum and volume were not sharing in the bullish sentiment which eventually lead to lower prices.

With this period of decline $UUP has fallen to two levels of support. First we have the trend line off the February low. We are also at the 61.8% Fibonacci Retracement between the February low and May high. Turning our focus back to momentum, the Relative Strength Index is a few ticks below the bullish channel we would want to see for the dollar to catch a bid, however it hasn’t quite been sucked into oversold territory quite yet.

The Euro appears strong this morning so we may see a trend line break if dollar bulls don’t step in soon.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

U.S. Dollar Bullishness Hits Record High

Posted on March 26, 2013 by Andrew Thrasher, CMT

I’m pretty busy this morning but wanted to get this one chart posted. The dollar has been rallying since February and the PowerShares U.S. Dollar Bullish ETF ($UUP) is up a little over 4% from its 2013 low. This bounce in the dollar has caused a large shift in bullishness for the U.S. currency, with long positions hitting record highs based on COT data.

Here’s a chart produced by SentimenTrader via Business Insider that shows the number of net long positions of large speculators (which are primarily hedge funds) in the dollar hitting record highs. It’s important to note that past peaks in net long positions have not been associated with highs in the dollar. Just like in equities, we typically see sentiment top out before price does. So while it’s possible for the dollar to take a breather, this frothy sentiment isn’t as short-term bearish as some would have you believe.

Source: The Number Of Bets On The US Dollar Has Never Been Higher (Business Insider)

Dollar Creating a Head and Shoulders Pattern

Posted on December 19, 2012 by Andrew Thrasher, CMT

No, the U.S. dollar doesn’t have a dandruff problem (sorry, bad joke). There seems to be a lot of discussion, at least by those I follow on Twitter and in the blogs I read about the bearishness of the dollar. There has been a head and shoulders chart pattern that’s setup in the PowerShares US Dollar Index Bullish ETF ($UUP) that gives credence to those negative on the dollar.

This pattern gets discussed pretty often as it lurks it’s bearish head. One of things that frustrates me when I see it mentioned is the lack of analysis given to volume. With price action creating the necessary chart pattern, this only gives us half the equation. What many people leave out is the necessary volume requirements associated with a head and shoulders pattern (H&S). Like many setups, volume typically trails off during the patterns completion. H&S is no different.

The largest amount of volume should be observed during the top of the left shoulder, when the head is created volume should be slightly lower and then even lower when we get the right shoulder. By each rally attempt being accompanied by weaker volume we can see the bears stepping in and whacking down any attempt at an advance. This is part of what makes the pattern bearish.

When looking at the above chart of $UUP we can see that volume does in fact confirm the H&S pattern that price is showing us. From here we are looking to see if price falls below the trend line, completing the pattern. It’s important to remember that oftentimes when price breaks the ‘neck line’ of a H&S pattern it will bounce and re-test. This can act as a confirmation of further weakness if what once was support becomes resistance.

The Dollar May Need a Breather

Posted on May 24, 2012 by Andrew Thrasher

I’m going out on a limb here and thinking the U.S. dollar may need to take a breather here for a moment. I’m going to review a few charts to explain my reasoning…

First up is the slight divergence I’m seeing in the Ultimate Osc., which is a momentum indicator that takes into account three different time frames. It’s a small divergence and I’d prefer to see the Ultimate Oscillator break down further for me to get more confident in this opinion, but a divergence nonetheless.

I’ve discussed COT data before, and below is a chart showing the net positions in the euro. As you can see, commercial traders (green line) have never been more net-long the euro since 2007. While ‘small traders’ (blue line) have never been more net-short during the same time period. Typically the commercials win this tug-of-war, but the time it takes to declare a winner is the key variable.

Finally, the EUR/USD pair has fallen hard and fast and now sits just above the 78.6% Fibonacci retracement level.

With all that being said, and the constant chatter that comes out of the Europe as they try to solve the woes of Greece, a lot could still impact the dollar. Bernanke’s quantitative easing programs have not supported a strong dollar, and if we get an additional round this summer (which is anyone’s guess) then we could see history repeat itself with a contraction in the dollar. Long-term I think parity for the EUR/USD is not out of the question but few things that important happen in a straight line.

The Knife That Won’t Stop Falling

Posted on May 21, 2012 by Andrew Thrasher

I haven’t been the most optimistic about the market as of late. I want to be, ask my wife, I hate negativity. It’s just very hard to look up when the market and various indicators look down. The things I can be positive about are some of the momentum indicators have shifted into oversold territory and now I’m just waiting for them to get out of being oversold before seeing an ‘all clear’ flag being flown. Selling volume has eased just a hair, nothing to get excited about but it’s something to watch this week. High beta stocks continue to plummet in comparison to the overall S&P index as traders continue their shift into lower-volatile sectors.

The chart below shows a short-term moving average of the number of advancing issues on the NYSE, as I’m sure you can guess without even scrolling down, it’s not pretty. When compared to past occurrences (orange line) of extremely low advancing issues, we haven’t been to this low level since August of last year, and before that it was May ’10, February ’09, and November ’08. These instances do not necessarily coincide with exact market bottoms but they seem to be present right before a bottom has occurred.

Next up is the U.S. dollar, which has reached a level of past resistance. With all the happenings of Europe it’s not a surprise to see investors seek safe haven in the dollar, it’s just a matter if buyers can push past this moat of resistance. The RSI indicator has also hit a level that we haven’t been to since 2010.

A falling knife-style market like we have been experiencing in May of this year normally slices right through moving averages like butter. And this has been the case so far with shorter-term MA’s. The next MA up (at least that I’m watching) is the 360-day. I’ve circled past touches of this moving average to show its relevance. It will come into play at the 1291 level. However, the futures market this morning has not given any respect to this price point (hitting 1287 during European trading).

Disclaimer: Everything in this post is meant for educational and entertainment purposes only. Do not construe anything written in this post or blog as a recommendation, advice, or an offer to buy or sell any securities. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.