Update on DX: Sep 19, 2016

I chart DX every day and post an update more often than not.  But, with the FOMC and the BoJ both meeting this week, it seems like a good time to look at the big picture for the greenback.

Last May [see: Update on DX: May 6, 2016] we noted that DX was at a crossroads.  Its future depended on whether CL or USDJPY would step up and fuel stocks’ next leg up.

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.

As it turned out, USDJPY stepped up to the plate and rallied through the remainder of the month.  And, after a few days of waffling, CL rallied through June 8.  So, DX broke out, but only rallied through the end of May when USDJPY topped out..  At that point, it bumped up against the top of the falling white channel and spent the next several weeks backtesting the gray channel from which it had broken out.

2016-09-19-dx-daily-1054As the chart above shows, DX took the 2nd backtest on June 23 and used it to form the bottom of a rising channel (white) that has since guided prices higher.

The following day saw DX rally 3.95% after the Brexit results came in, lifting it up and out of the falling white channel as well.  By the time it got done rallying, that rising white channel was looking pretty solid.  But, is it?  Can it maintain its momentum if the FOMC doesn’t raise rates?

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