Break Or Bounce?

The U.S. dollar is at a critical technical crossroad. Multi-month support in confluence with a long term trend line (we'd like to call it a trend line buffer zone). We won't get into the fundamentals in this snippet; but rather want to give traders a heads up on the macro trend.

If we clear this area on the DXY (dollar index), we will most likely head lower, much lower we guess. If we bounce from here, traders need to watch price action closely because we have a feeling any significant strength in the greenback may be faded by the growing camp of increasingly bearish bears. 

 The U.S. Dollar Index as shown in this chart is at critical technical crossroads. A confluence of multi-month support, which is to an extent pivotal in the past, and a long term trend line dating back to May 2015. Breaking under this critical area will likely encourage bears to sell harder, while a bounce might be faded by an increasingly bearish camp of bears. Bounce or break?

The U.S. Dollar Index as shown in this chart is at critical technical crossroads. A confluence of multi-month support, which is to an extent pivotal in the past, and a long term trend line dating back to May 2015. Breaking under this critical area will likely encourage bears to sell harder, while a bounce might be faded by an increasingly bearish camp of bears. Bounce or break?

We have written extensively about the U.S. dollar and what a strong dollar begets, and what a weak dollar begets. Forget not that the U.S. dollar (TWI DXY) is at 13-year highs. That's a very strong dollar by any measure. Now that the Fed has hiked interest rates to 0.5% in December, the first time in almost a decade, the dollar has seen incredible volatility as traders all around the world are more than just flummoxed at the future trajectory of the world's reserve currency. 

But for the record, U.S. macro economic data have come out very weak so far in 2016. About 80% of these data releases have disappointed estimates, and the language from the Fed themselves has softened notably, giving push to the prospect of no more rate hikes for 2016 and raising the ugly specter that is the Fed's admission that it made a major policy error hiking into a deflationary downturn. 

So which side are you on? The market may reward bulls and bears, but in this case, we reckon being flat is a wise decision.