10 months ago • 1 min
This chart shows the US dollar index (DXY, TradingView), which measures the strength of the greenback against a basket of other major currencies.
As you can see, the US dollar was pretty much unstoppable for much of last year – as sharply higher interest rates and general market jitters had investors and savers flocking toward it. Then came September, and the currency began to slide. And now, with many investors expecting that interest rates won’t go much higher in the US, there’s good reason to believe the greenback has more downside ahead. Be that as it may, the technicals suggest that now would be a dangerous time to bet against the dollar’s wrath.
First, the index is hovering around in a major support zone (gray rectangle) set in 2015, 2016, and 2020. So you can bet your bottom dollar that big technical traders will be looking to buy in at that level, anticipating a bounce. Second, the index just so happens to be sitting right on the 0.5 Fibonacci retracement level (green line) from its January 2021 low to its high of last September. In other words, that rally’s now given back 50% of its gains. You’ll notice how the index bounced after doing the same thing in 2018 (blue line) and 1998 (yellow line).
If you want to play this forex trade, consider investing in the Invesco DB US Dollar Index Bullish Fund (ticker: UUP; expense ratio: 0.78%), which uses futures contracts to replicate the performance of the dollar index. But as with any technical trade idea, there’s an important caveat here: if the DXY does lose its support, it could see a much bigger unraveling. And you’d want to get out of that trade – fast.
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