US Dollar, Oil Overbought: Will They Correct Enough?
They are two of the world’s biggest trades and both are overcrowded on the long side, with charts suggesting the need for meaningful corrections.
But the question really is: Will we get more than just piddly moves down in the US dollar and oil that won’t get erased in the next session?
Charts by SKCharting.com, with data powered by Investing.com
At the time of writing, the Dollar Index Futures — which is reflective of the US currency’s performance in pairings like the euro-led EUR/USD, the yen-themed USD/JPY and Aussie-driven AUD/USD — hovered at 106. That was a combined drop of 0.6% over two sessions after Wednesday’s run to a 10-month high of 106.84.
But instead of pushing down further for a test of 105 — a level that will effectively neutralize three weeks of the greenback’s eight-week long rally, giving it the energy to regroup and run even higher — chart studies by Investing.com indicate DXY may jack-knife the other way soon.
Sunil Kumar Dixit, chief technical strategist at SKCharting.com, who collaborated with us on the study, says the index could instead spring for a shot at 107, adding:
“The current pullback of the DXY may be just a breather for the dollar, rather than actual weakness.”
Dixit observed that DXY did shed some gains from Wednesday’s highs to drop to 106.02 and close Thursday’s session at 106.17, marginally above the 5-Day EMA, or Exponential Moving Average, of 106.13.
“Further decline is likely on a sustainable breakdown that should target the 38.2% Fibonacci zone of 105.39 in the wake of momentum distribution.
However, consolidation above 106.26 may provide Dollar Index potential for reclaiming its 106.84 heights, above which the 50% Fibonacci zone of 107.18 sits as a strategic resistance.”
DXY’s
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