Daily Edge

Chart of the day

To see an expanded version, right-click and select ‘open link in new tab’. The indices show the performance of a currency vs a G8 forex basket. Indicators are available to use these measures via Tradingview and MT4. 

Oftentimes there is this constant debate. What matters the most, technicals or fundamentals? My personal stance in the subject is that while the latter is critical to understand the ‘whys’ of long-term trends, it is the technicals that show us the road map to get there, in other words, the ‘hows’.

With that out of the way, in today’s write-up I want to solely concentrate on the technicals of the world’s reserve currency. Where the USD index (equally-weighted vs G8 FX) has landed, the way it’s gotten there (in terms of the volatility expansion seen) and the structure it’s formed, all suggest to me we may be in for a resurgence of USD buy-side flows this January.

These are the reads I am getting in the USD index from a monthly chart perspective:

• The index is testing what’s arguably been the most determinant inflection point since the GFC in 2008.
• Every time this area has been tested, without exceptions, a major trend change has followed.
• The area is confluent with not one but two 100% projection targets. These measures are depicted via green arrows in the chart above.
• If history is any indication, January is by a large margin the best performing month of the year for the USD index (data since 1982).
• The over-extension to the downside has reached a 2-standard deviation (ATR-based) away from its central mean (13ema off the monthly chart).

Analysis of the USD index

In my video analysis below I lay out the rationale that leads me to think there are significant risks for bullish price action in the USD in coming months.

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