Yesterday marked another failed recovery attempt by the US dollar.  It started out strongly, rallying .75 from the previous day’s lows based on the tax bill advancing in the Senate.  But, political turmoil struck again.  The latest twist in the Flynn/Mueller/Trump saga wasn’t exactly dollar-positive.  DXY closed in the red for the third session in a row.

We shorted DXY way back on Nov 9, when it dropped through its SMA10.  The move was confirmed on Nov 14 when the rising white channel broke down and hopes of a tag on the SMA200 or falling white channel top started looking iffy.

The bounce at the .618 Fib on Nov 27 gave dollar bulls hope.  But, it has still yet to close above its SMA10, let alone the SMA100.

A backtest at 95+ is looking less and less likely every day.  And, with another debt limit impasse ahead, the risks are mounting.  If it can’t rally based on the tax bill or the all but certain Fed rate hike, what’s it going to take?

continued for members…

A drop to the white .786 or .886 is looking increasingly likely.  And, unless the Fed comes out sounding very, very hawkish after its next meeting, a drop to 89.885 or 88.5 is a good possibility.I’d keep an eye on the falling purple channel shown below.Needless to say, USDJPY has struggled to advance — though it’s taking another shot at it today. VIX is in position to drop below the yellow channel bottom again — which should help prop up stocks.And, RB and CL are getting a bounce — even if it is only interim.All things considered, ES is 5 points higher so far.  It pushed back into the rising purple channel yesterday, but is stumbling at present.

UPDATE:  3:00 PM

The DXY managed to break out of the falling purple channel and above the SMA10 and SMA100 — for now.  This represents the end of the line for our short position if it holds.  Looking at gold, though, it’s hard to shake the feeling it’s just an intraday prop job designed to keep stocks from dropping through important support.Gold caught a bid at the SMA200 and a TL off the Dec 1124 lows.  The next move for each will be important.I’ve been neutral on gold since it failed to make new highs a couple of weeks ago.  I think this would be a reasonable point to try a long position with tight stops.  The initial upside target is 1324. 

Needless to say, if GC drops through the SMA200, it represents a shorting opportunity with an initial downside target would be the .786 at 1237.90.  But, the more important signal is the yellow TL from 2011 (1250ish.)  Below it, I’d want to be short.  Above it, I’d want to stay long.  It’s really as simple as that.

UPDATE:  4:10 PM

FWIW, ES finished the day at TL support.  It has given up the purple channel again and, if it doesn’t hold here, faces a backtest to the ..618 at 2580.  DXY is currently trading above the SMA10, meaning the jib might be up.  Though it’s worth noting that it closed below the SMA100 and is barely out of the falling purple channel. USDJPY is still struggling to break out… …and, VIX conveniently closed just below the yellow channel bottom.Somehow, I missed a query from Tim regarding a 2750 year end SPX target that he remembered me posting earlier this year.  I don’t recall it, and I can’t seem to put my finger on it.  However, that number is as good as any of several others that could come into play if Congress, Trump and the Fed all bowl a perfect game from here on out.

If SPX can hang on to the rising white channel, its midline finishes the year around 2750.  Its top would be around 2917 and the bottom would be around 2600.

If the white channel is broken out of, the purple channel top is around 2980 and its midline is about 2360.  We’ve already tagged the purple .786 line, so traditional channel movement would suggest a backtest of the midline (of course, traditional chart patterns are being broken and ignored daily.)

From a MA standpoint, the SMA200 looks to be around 2475 and the SMA100 around 2550.

We should get at least a little more follow through on CL and RB in the next day or two.  RB gave up most of its gains on the day, and is very likely to test the cloud target.  While, CL could easily continue lower if USDJPY finds its footing.

GLTA.