Update on DX: May 6, 2016

In our Apr 18 update on the dollar, we identified 93.441 and 93.136 as support that needed to hold in order for the plunge that began last December to reverse out of the falling white channel.

2016-04-18 DX D cloud 1800As it happened, the dip to the white channel bottom was interrupted by a week.  So, DX needed to decline a little further in order to finally accomplish it.  In the process, DX dipped below the Aug 24 lows — confusing a lot of traders who interpreted it as turning bearish.

The same traders were no doubt confused at the strength of the rebound from Monday’s lows.  As it turns out, there’s no need to be confused.  Just more of the same kind of manipulation that’s been propping up stocks for years.

2016-05-06 DX daily 1212Last Aug 24 marked a peak in the value of the yen (a plunge in the value of USDJPY – the yellow arrow below.)  The yen carry trade was in serious danger of unwinding, and SPX reacted exactly as we anticipated..

2016-05-06 USDJPY v SPX daily 1212A stronger dollar/weaker yen was essential to maintaining SPX above the 2014 lows.  That’s why DX was never allowed to tag the midline of the big red channel as it should have in early September.  The yellow dot would have been the logical place for a reversal, not the red arrow.2016-05-06 DX v SPX 1238And, that’s why DX broke out of its falling gray channel in late October (the yellow arrow), maintained the breakout for the next six months, and rebounded so vigorously back above that same midline earlier this week.2016-05-06 DX v SPX CU 1238If you look closely, you can see that while it’s back above the red midline, it fell back within the gray channel and is now poised to either break down or out.

If you believe CL will break out again and deliver SPX to new highs, then DX breaking down here would make perfect sense. If, on the other hand, the BoJ has seen the folly of its ways and is about to breathe new life into the yen carry trade, then DX will surely break out.  Hey, TPTB might even screw the pooch again as Kuroda did last week.

I don’t know which to expect.  So, I’m not placing any bets at the moment — especially heading into a weekend when the risk of manipulation is off the charts anyway.  But, I’m pretty sure we’ll find out soon.

Stay tuned.


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