SAMT Blog
Resumption of Downtrend for US$ Index!
01. May 2021, by Bruno Estier
Technical Analysis
In the first quarter of 2021, the US$ Index displayed a sizable rebound from 89.17 to 93.47, but it reversed down in April right on schedule of the seasonality, displaying weakness from April to October. Also, it broke 91.80, which represented a 38% Fibo retracement of the previous rebound. This should confirm the resumption of the former downtrend of the US$ index seen in the last three quarters of 2020.
In early April the weekly momentum STO crossed down into its overbought area, giving a medium-term sell signal, which is going to be strengthened by the negative MACD crossing down again in the coming weeks, as displayed on the two lower panels. The near-term target becomes the lower weekly Bollinger Band (currently 89.26), which is near the previous major low of 89.17. However, given the downside strength of the momentum indicators, a Fibonacci target related to the first quarter 2021 rebound suggests looking for a decline toward 86.90. As displayed on the chart, another Fibonacci target related to the 2020 decline suggests a lower target of 81.85, obviously in a period further down the road.
The analysis of the price pattern of the US$ Index seems to also reinforce the message of the resumption of the US$ Index decline: it reveals that the rebound of the $ in the first quarter 2021 took place in 3 sub-moves, called corrective zig-zag, while the April decline is taking a much more linear and impulsive pattern. Finally, an astute observer will note that the weekly Ichimoku Cloud is currently declining, located now between 94 and 97, and is widening, thus indicating that it will become an even stronger resistance area in coming weeks.
Further, on the upper panel, the CRB Index (red dotted line) is extending its uptrend started in April 2020. From an inter-market technical perspective, when the CRB Index is usually rising, the US$ Index is declining. Oil and in particular copper are currently contributing to the rise of the CRB Index. Also with a rising CRB Index, the Relative Strength of emerging markets versus the S&P500 (orange solid line) is usually rising. However, right now it is only at best bottoming, so the impact of rising CRB Index as well as the extent of a declining US$ Index may not be fully discounted. Finally, a lower US$ Index has been correlating with an uptrend of the S&P500 (green solid line) during 2020. However, this correlation is quite volatile, as the rising US$ Index in the first quarter of 2021 has had little negative impact on the US equity market, which is now entering its seasonally weak period until October.
About the author
Bruno Estier is an Independent Market Strategist and founder of Bruno Estier Strategic Technicals (bruno.estier.net). Based in Geneva, he is a global market advisor and technical analyst coach for professional traders and portfolio managers.
He is a past president of the Swiss Association of Market Technicians (SAMT) and served on the board of directors as chairman and secretary of the International Federation of Technical Analysts (IFTA). Bruno holds a MSTA from The Society of Technical Analysis (STA) in London and the CFTe and MFTA designation from IFTA.
He worked for 12 years as a technical analyst with JP Morgan in Zürich and Paris and 10 years with Lombard Odier & Cie in Geneva. He earned an MBA from The University of Chicago Graduate School of Business and a Masters in Economics from the University of Saint Gallen (HSG).
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