As in the past, its time for me to leave side my stocks hat of micros and take on the cross asset macro hat. Currencies are one of the largest asset classes and garner a lot of attention when they move. Some currencies are directly proportionate to some asset classes, such as Aussie Dollar to stocks, Canadian Dollar to commodities. Given this correlation, it makes sense to study them going into the next year, especially when we know there’s hardly anything great happening with the stocks in the current month of thinly traded December. Lets dive in with the mighty dollar!
DXY (Quarterly chart): Dollar Index, which comprises of six key currencies of the world, is biased towards EUR with 57% weight. Yet it matters from the point of view of how the Dollar is faring against those major currencies. Below is the quarterly candlestick chart of the DXY. It shows the rally since 2009 has been rising inside this broad channel (green). Recent rejection from the upper end of the channel tells us that it may have been done with the rise for now and probably headed towards lower end of the channel? But there are two key things that are supporting the dollar – Key trendline support (white) and demand zone (greyed area). Also, it could easily be termed as a mean reversion (20 MA) of the quarterly candles before it rises back up.
DXY (Weekly chart): when we zoom out a bit to weekly candles of the DXY, we see those gyrations of this year are nothing but consolidation within a boxed range of 99.80 to 107.20. Remains to be seen if and when it breaks out of this range. For now, it doesn’t look to be breaking out. Nowhere.
DXY (Daily chart): When we zoom out further into the daily chart of the DXY we get more clarity. It’s been bull flagging from this upper end of the boxed range – 107ish. Currently right at the upper end of the channel and above the 200 MA of the daily. It looks like it wants to break out, but I wouldn’t hold my breath going into the end of the year. May be next year when it does.
Equal weighted Euro Index (Monthly chart): Just like the Dollar Index, even the Euro has been consolidating, just that the Euro is stuck within this triangled range for about 10 years now. May be its time to break the shackles? We’ll see in the following charts if there is any further clue.
Equal weighted Euro index (weekly chart): When we zoom out to the weekly chart, we see it has broken down off the rising wedge (red lines), just about few weeks ago, backtested it and has also rejected off the backtest. The sell-off after the backtest rejection has been severe. Which means it has some more leg on the downside.
Equal weighted Pound Index (Monthly chart): The chart of the GBP isn’t any different than the EUR. 7 years long consolidation and sitting right at the upper end of this range. Next few charts tell us more clear things.
Equal weighted Pound Index (Weekly chart): Yes, it is following the footsteps of EUR here too. Breaks down off the rising wedge and hanging/flagging right under the 20 weeks MA.
Equal weighted Pound Index (Daily chart): Daily chart of the GBP has broken down off this bear flag and is just above the 200 days MA along with holding on to the 50 MA. About time it breaks down of it?
Equal weighted AUD index (Monthly chart): The Aussie dollar, which is a proxy for stocks, has long been in this inverse H&S pattern and now it seems it wants to give up on this as there hardly been any progress on the right shoulder. It has barely moved on the upside, inspite of the rally that we have seen on the stocks worldwide. What does it tell you? Either stocks have gone in the wrong direction or Aussie dollar has a catch up to do. May be weekly chart can help us get some clarity.
Equal weighted AUD index (weekly chart): On the weekly, the Aussie has been flagging inside this channel for more than a year now. This time though, it has taken a support off this key trendline (white), along with lower end of the channel. May be its time to move up for the Aussie?
Equal weighted NZD Index (Monthly chart): The Kiwi, usually follows (and at times leads) the Aussie. While it has also been in that inverse H&S for a long time. There is another key trendline that has been holding the Kiwi dollar for a few months now. Sandwiched between the key MAs and the trendline, I would guess next 2 months would be key for the kiwi to decide on its next few years’ direction. It could be a trend deciding one and would have implications for the AUD as well.
Equal weighted JPY Index (Weekly chart): Japanese yen has been making a lot of noise off late, for the right reasons of course. JPY has been falling for a very long time and there are market participants who believe next major move would be caused by the currency of the rising Sun. What they did not tell us is that it’s probably time to reverse the course. For the next few months at least. The weekly chart of the Yen suggests it has all the signs of bottoming out in place, including secondary indicators giving positive divergences.
Bitcoin (Weekly chart): The rally in the Bitcoin has been contagious and catchy. Almost everyone wants to be in this rally and be called a genius to have made some money. Is it time to get in or get out? The weekly chart says there is a supply zone around 48,000 and that is where we also have 61.8% fibonacci retracement of the entire fall from 69000 to 15000 we witnessed in the recent past. May be that’s the time (or may be before that) we have to be off the bus.
Conclusion: If we look at the DXY, the dollar index it looks like it wants to break out of this bull flag/channel. But if dollar rises, it is a bad news for the stocks. Aussie dollar, on the other hand, is dilly-dallying with the rally and is stuck within a downward sloping channel. EUR, GBP have some more ticks on the downside. I would wait for the month of December for making a call, but it does look like there is more on the cards for the bears as well as bulls in the coming year. Watch this space closely!
Weekly US markets outlook:
Macro micro trader 
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