U.S. Dollar IndexShort
USDCAD Fundamental and Technical Update for the Weak Ahead
It was a terrific year for US Dollar volatility in spite of the fact that the USD spent most of the year in a range. '
The currency entered 2021 with full speed ahead in the negative trend. A significant level had formed around the 90.00 handle, which coincided with a Fibonacci level displayed around 89.92. This is a 38.2 percent retracement of the big advance from 2001 to 2008. It halted the sell-off in December 2020, and when the door opened into 2021, a sustained grind at this level in January resulted in a boost in February and March.
That rise was fueled by the potential of the reflation trade, punctuated by the optimism that vaccinations will eventually put an end to Covid and enable us all to go back to enjoying our lives. That didn't happen, and in Q2, the USD's bullish flare deflated, and price movement returned to the 89.92 Fibonacci support level, which held the lows in May. That bullish narrative in the US Dollar was particularly loud in Q4, and it even started before the market opened. As I said in my Q4 prediction, the US Dollar was forming an ascending triangle, indicating the possibility of a bullish breakthrough.
That breakthrough occurred immediately after the September FOMC rate decision, at which time the bank began to expect rate rises for next year. This provided an initial break, but what appeared to do most of the pushing was inflation statistics, which continued to rise throughout the quarter. This pushed the USD to a new 2021 high before price action reached a confluent zone of Fibonacci levels stretching from the 38.2 percent retracement discussed above to the 96.47 level, which is the 23.6 percent Fibonacci retracement of the 2017-2018 big advance.
That price was also the last goal from the Q4 technical projection, and as we approach the 2021 open, it will most likely be in play as we into 2022 trading. Price action put in a sequence of dojis at that confluent area on the chart, as shown on the weekly chart. That's a lot of uncertainty after such a tremendous run. Normally, a doji at a crucial resistance level after a very strong run would favor pullbacks, but the fact that price hasn't pulled back after many weeks of equalized price movement in this tight region is deductively positive. That suggests there are purchasers defending the line in the sand, which is one of the reasons why the US Dollar's Q1 Technical Forecast is optimistic.
However, timing that theme may be difficult, since a retreat cannot be ruled out. The issue thus becomes, even if a retreat does occur, is it likely to upset the overall trend? I don't think that is the case, and there is an opportune position for that retreat to go towards: the 38.2 percent retracement of the 2020-2021 sell-off move. This was also a point of resistance that appeared immediately after the Q4 breakout, but it has yet to be tested for support. A retreat to this level, around 94.47, might keep the door open for further gains.
On the upside, breakout potential remains at current highs, with the timing likely dictated by how strong inflation data stays in early 2022 trading.
However, another boost began to emerge before of the Q4 open, as the Fed finally began to hint a higher rate regime on the way, mostly in reaction to persistently strong inflation. This propelled price action all the way up to the 38.2 percent retracement of that same significant move, and as we approach New Year's Day 2022, that price is helping to retain near-term support in the USD. Our target for 2021 is dynamic, but also entirely full of reinforced intelligence.
The technical outlook for the US Dollar remains optimistic for the first quarter of 2022. And the reasons for this aren't wholly technical, since the underlying context is, in my view, too compelling to ignore. The Euro is a significant component of the US Dollar pricing, accounting for more than 57 percent of the DXY quotation. When looking at USD predictions, it's critical to factor in the Euro. And the disparity between the two economies seems to be too great to allow for continuous range.
However, when the USD ran into this large level of confluent resistance, the EUR/USD pushed down to a significant region of confluent support – thus the issue will likely need a push before new highs in the USD or new lows in the EUR/USD can be created. This drive, I believe, may come from one of two sources: Either US inflation continues so high that the trend deviates from the core cause. Alternatively, the US Dollar falls to support around 94.50 while the EUR/USD pushes for resistance at 1.1448-1.1500, at which time the larger picture trend might benefit from USD gains and EUR/USD weakness. The 38.2 percent retracement of the previous bullish trend lines up with 94.11, and this may be paired with the 94.47 level to form a 'zone' of possible support to look to for bullish continuation possibilities.
The currency entered 2021 with full speed ahead in the negative trend. A significant level had formed around the 90.00 handle, which coincided with a Fibonacci level displayed around 89.92. This is a 38.2 percent retracement of the big advance from 2001 to 2008. It halted the sell-off in December 2020, and when the door opened into 2021, a sustained grind at this level in January resulted in a boost in February and March.
That rise was fueled by the potential of the reflation trade, punctuated by the optimism that vaccinations will eventually put an end to Covid and enable us all to go back to enjoying our lives. That didn't happen, and in Q2, the USD's bullish flare deflated, and price movement returned to the 89.92 Fibonacci support level, which held the lows in May. That bullish narrative in the US Dollar was particularly loud in Q4, and it even started before the market opened. As I said in my Q4 prediction, the US Dollar was forming an ascending triangle, indicating the possibility of a bullish breakthrough.
That breakthrough occurred immediately after the September FOMC rate decision, at which time the bank began to expect rate rises for next year. This provided an initial break, but what appeared to do most of the pushing was inflation statistics, which continued to rise throughout the quarter. This pushed the USD to a new 2021 high before price action reached a confluent zone of Fibonacci levels stretching from the 38.2 percent retracement discussed above to the 96.47 level, which is the 23.6 percent Fibonacci retracement of the 2017-2018 big advance.
That price was also the last goal from the Q4 technical projection, and as we approach the 2021 open, it will most likely be in play as we into 2022 trading. Price action put in a sequence of dojis at that confluent area on the chart, as shown on the weekly chart. That's a lot of uncertainty after such a tremendous run. Normally, a doji at a crucial resistance level after a very strong run would favor pullbacks, but the fact that price hasn't pulled back after many weeks of equalized price movement in this tight region is deductively positive. That suggests there are purchasers defending the line in the sand, which is one of the reasons why the US Dollar's Q1 Technical Forecast is optimistic.
However, timing that theme may be difficult, since a retreat cannot be ruled out. The issue thus becomes, even if a retreat does occur, is it likely to upset the overall trend? I don't think that is the case, and there is an opportune position for that retreat to go towards: the 38.2 percent retracement of the 2020-2021 sell-off move. This was also a point of resistance that appeared immediately after the Q4 breakout, but it has yet to be tested for support. A retreat to this level, around 94.47, might keep the door open for further gains.
On the upside, breakout potential remains at current highs, with the timing likely dictated by how strong inflation data stays in early 2022 trading.
However, another boost began to emerge before of the Q4 open, as the Fed finally began to hint a higher rate regime on the way, mostly in reaction to persistently strong inflation. This propelled price action all the way up to the 38.2 percent retracement of that same significant move, and as we approach New Year's Day 2022, that price is helping to retain near-term support in the USD. Our target for 2021 is dynamic, but also entirely full of reinforced intelligence.
The technical outlook for the US Dollar remains optimistic for the first quarter of 2022. And the reasons for this aren't wholly technical, since the underlying context is, in my view, too compelling to ignore. The Euro is a significant component of the US Dollar pricing, accounting for more than 57 percent of the DXY quotation. When looking at USD predictions, it's critical to factor in the Euro. And the disparity between the two economies seems to be too great to allow for continuous range.
However, when the USD ran into this large level of confluent resistance, the EUR/USD pushed down to a significant region of confluent support – thus the issue will likely need a push before new highs in the USD or new lows in the EUR/USD can be created. This drive, I believe, may come from one of two sources: Either US inflation continues so high that the trend deviates from the core cause. Alternatively, the US Dollar falls to support around 94.50 while the EUR/USD pushes for resistance at 1.1448-1.1500, at which time the larger picture trend might benefit from USD gains and EUR/USD weakness. The 38.2 percent retracement of the previous bullish trend lines up with 94.11, and this may be paired with the 94.47 level to form a 'zone' of possible support to look to for bullish continuation possibilities.
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