UPDATE: Commodity bulls poised to cheer if 'King Dollar' finally loses its crown, chart watcher says
By William Watts, MarketWatch
ICE U.S. Dollar Index threatens to fail at 'double top'
A closely followed U.S. dollar index is threatening to put in a "double top" on the charts. If it does, it could offer a respite to beaten-down commodity prices, a well-known chart watcher said Tuesday.
The ICE U.S. Dollar Index , a measure of the U.S. currency against six major rivals, for now remains in an uptrend, and has been a "pillar of strength" over the last 12 years, noted Chris Kimble, founder of Kimble Charting Solutions, in a blog post (https://kimblechartingsolutions.com/2020/05/king-dollar-could-double-topping-commodities-would-benefit-if-it-does/).
See:After years of calling for weaker currency, Trump declares 'strong dollar' a good thing (http://www.marketwatch.com/story/after-years-of-calling-for-weaker-currency-trump-declares-strong-dollar-a-good-thing-2020-05-14)
But a double top, if confirmed, would change the picture. He lays it out in the monthly chart below:
After pitching lower during the early stages of the 2007-2009 financial crisis, the index started making higher lows each month and recovered 61% of the drop from its 2001 highs to the 2008 lows to trade above 102 (at 1 on the chart ), where it created back to back monthly bearish reversal patterns in 2017, Kimble noted.
Kimble is referring to what's known as a Fibonacci retracement -- a tool used by technical analysts based on ratios discovered by mathematician Leonardo Fibonacci in the 13th century. Chart watchers who follow the Fibonacci ratio see 38.2%, 50.0% and 61.8% as the key retracement levels of a significant move, and 23.6% and 76.4% as secondary targets.
After the 2017 setback, it's rallied back to retest that 61% retracement level, trading above 102 in early April as it was lifted by global financial turmoil and a global dash for dollars. Since then, the index has pulled back, trading Tuesday near 99.09, trimming its year-to-date gain to around 2.8%.
So what would it take to prove that the dollar has topped? Kimble said a move below 93 would do it, adding that "if it does breakdown, hard-hit commodities would benefit!"
A weaker greenback is often seen as supportive for commodities priced in dollars because it makes them cheaper to users of other currencies.
Commodity prices have been hammered in 2020 as lockdowns aimed at containing the COVID-19 pandemic brought major economies to a virtual halt. Oil has bounced sharply after a first-quarter collapse that saw U.S. benchmark futures trade in negative territory for the first time ever last month.
The Bloomberg Commodity Index remains down 21.9% in the year to date, according to FactSet.
-William Watts; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
May 26, 2020 13:50 ET (17:50 GMT)
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