Currency Wars: Keep in Mind the Fundamentals, but Don’t Forget the Charts

Lindsay Hall  |

Futures Outlook for the Week: 02/19/13

There has been quite a bit of discussion lately around the “Currency Wars” and I have no doubt that these discussions will continue for some time.  It is important to remember that there are many fundamentals that play into the necessity for a weaker Yen, Dollar, Pound, Euro, etc.  Many of these fundamental issues will not change overnight.  The game is now how to find the right balance globally speaking, but with many trying to outpace the others in the devaluation front, this could take some time.  Right now I would ask that you keep in mind the fundamentals but remember that wars consist of multiple battles.  As these battles continue, remember to look at what happens on the charts as guides to the small victories and losses along the way.

U.S. Dollar

By now, we are all aware of the way the U.S. Dollar has weakened over time.  If you’ve been paying attention lately, you would have noticed some additional strength in the U.S. Dollar.


If you look at the Daily chart, you’ll notice that we have seen bullish activity on the part of the USD for the entire month of February.  I want you to keep an eye on the 80.75/81.00 territory for the U.S. Dollar Index as this is near term resistance for it.  If it is able to breach these levels then there is potential for further growth.  If it cannot break these levels, you will want to evaluate near term short side potential.

The Weekly chart is much more interesting to me right now than the Daily chart, but we obviously cannot have any important action on this chart without some really nice activity on the days.  Watch the Weekly chart for its potential to create a very broad, 2 years in-the-making, head and shoulders pattern.

We need to watch not only daily resistance levels around 81, but we need to also be aware of another level around 82 that could crush any bullish nature should the day break upward.

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The level to really watch on the Weekly chart for anyone with a bearish sentiment for the USD is going to be the 78.60/78.00 territory on the way down.  If the USD starts losing value and can break the neckline located in the territory just mentioned, then there is potential for it to return to and potentially even test below the 74.00 level.  This of course would take us into some longer term short side trading opportunities.

The difficult part about the USD is that if it breaks down and completes this potential head and shoulders pattern it could spell even more pain for your pocketbook as the daily value of what you earn and save declines.  This is something that should definitely be watched.

The Monthly chart only adds fuel to the fire in that like so many of our markets we have a longer term triangular pattern which needs to break.  The uncertainty of sentiment, institutions, and governments has given us this same pattern on the Monthly chart for many different underlying issues across multiple financial markets.  Breakouts will happen.  The question will always be when and in what direction.  Look for clues along the way as you gauge your charts and don’t dismiss the fundamentals, but rather incorporate all especially if they give you similar signals.  When the deck has been stacked, watch closely for the final battles that will decide these Currency Wars.

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