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The dollar is heading into the year-end vulnerable to a sharp extension of the bear run that’s shaped global currency markets since March.
Long-term trends on technical charts stretching back over the past decade reveal multiple trigger points that could see the greenback shoot lower against a host of key currencies.
Poor liquidity, lightly-staff trading desks, defensive price-making engines and reduced seasonal demand add to the potential for outsized moves.
The Bloomberg Dollar Spot Index has already bulldozed down through a multi-year uptrend and a closely-watched Fibonacci level. The 50% retracement of its trough-to-peak move since 2011, which halted the greenback’s most recent rout in early 2018, is being challenged again.
The dollar is poised to close below monthly trendline support against the yen formed off its March trough. USD/JPY is approaching the swing level of 100.60 — the 50% retracement of its 2011-2015 rally, and 99.02, its June 2016 low. A close below 99.02 would open the way for an even deeper plunge in 2021, though this would likely draw in Japanese authorities to check the move.
The euro has already broken up through the descending trendline versus the dollar that’s formed from 1.6038, the July 2008 high set during the Global Financial Crisis. This brings onto the radar the February 2018 high for EUR/USD of 1.2555. And adjacent to this is 1.2517, the 38.2% Fibonacci bounce of the entire 2008-2017 move lower.
The pound has already tested 1.3620 versus the dollar, the 38.2% Fibonacci retracement of its 2014-2020 decline. A close above this level would invite a test of fierce resistance around two key peaks set in 2018 — 1.4345 from January and 1.4377 in April.
The New Zealand dollar has already breached 0.7156, the 50% retracement of its 2011-2020 peak-to-valley range against the greenback. Pullbacks from this point have been shallow. A monthly close above this would bring NZD/USD’s July 2017 peak of 0.7558 into play, which is adjacent to the 0.7555, its 61.8% Fibonacci retracement.
Michael G. Wilson is a FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
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