Is The Dollar Rally Over?


In several of our segments last week we discussed the GBP’s potential for breaking north of trend line Resistance. Last week we witnessed that very occurrence as the GBP took out the 50 day MA and stopped just north of the 100 MA, at the Fibonacci 50% Retrace level. From our analytical perspective this is important because we have noted in the past that the GBP does not waste much time between 1.50 and 1.60. At this point we do not see enough momentum to send the Pound north to 1.60. Rather, we believe the GBP will trade between the 50% Fibonacci Retrace and the 23.6% Retrace levels.


This pair is headed towards a major technical showdown as pressure in being exerted in both directions. The CAD bulls see a Step Pattern forming with lower highs and lower lows going back to the end of May (see chart). Thus, a break below the second Low, which is also a break below near term Resistance would most likely have the CAD retesting Dollar parity. CAD bears look at this chart and say the CAD’s inability to break Resistance by forming a double top at Resistance, coupled with the 50 MA moving back above the the 100 MA, with price action taking out both the 50 and 100 MA implies further weakness ahead. So who is the winner? A close below Resistance will have CAD bulls waving the green flag while a close above the first high in the Step Pattern will give CAD bears their win.


The Fibonacci relationship to the 50 and 100 MA’s is strikingly similar to the Pound chart above. Friday’s price action jolted the Swiss Franc just south of the 100 MA to close at the Fibonacci 50% level. To generate the Fibonacci levels, we used the low just south of the last traded level below the 100 MA versus the CHF’s most recent high near 1.17. A solid close below the 50% Retrace level will have the CHF testing the 61.8% level and the 200 day MA. Price is falling fast and trailing too far away from the 50 day MA and whenever that occurs we expect to see a small retrace as price and the 50 MA converge, however, there appears to be a little more room for divergence before we will see that pullback occur.

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