U.S. Dollar Choppiness Leaves Options Open

The U.S. dollar index is up 2.04% for the month so far

• U.S. Treasury yields are near their yearly highs, helping support the U.S. dollar.
• Nevertheless, the greenback made little progress this week, and the continued sideways chop leaves open possibilities in all directions in the short-term.
• The January FOMC meeting and January U.S. jobs report could help catalyze a move out of the recent congestion.

The past week-plus brought choppy, sideways action to the U.S. dollar.

The DXY Index is up +2.04% this year, but only +0.20% of that contribution came this week. Much like U.S. Treasury bonds, which are consolidating in familiar zones of support, the U.S. dollar does not have much going on directionally at present time.

Both bullish and bearish outcomes are on the table, particularly now that potent catalysts lie around the corner: the January Federal Open Market Committee (FOMC) meeting on Wednesday and the December U.S. nonfarm payrolls (NFP) report on Friday.

/6B British pound technical analysis: daily chart (September 2022 to October 2023)

The pound moves sideways

The British pound (/6BH4) remains in a sideways consolidation that has been in place since mid-December.

But a longer-term perspective also shows that /6BH4 has failed to return into the ascending channel in place off the October 2023, November 2023, and early-January 2024 swing lows.

Long upper wicks in recent days suggest that bulls have failed to reassert control, increasing the odds of a swing lower towards recent range support near 1.2600, though momentum is decidedly flat when looking at various indicators such as exponential moving averages (EMAs), slow stochastics, and moving average convergence/divergence (MACD).

Aside from the FOMC meeting and NFP release, the January Bank of England rate decision on Thursday offers another potent catalyst for /6BH4 in the coming days.

/6E euro technical analysis: daily chart (June 2023 to January 2024)

Where is the euro heading?

We’ve previously noted that there are two possible interpretations of euro (/6EH4) price action in the near term.

"A symmetrical triangle has been forming since July (blue lines on chart above) … [or] an ascending triangle that began forming in late-August (yellow lines on chart above).” Either way, the outlook is the same for /6EH4: it has failed in a breakout attempt and continues to head south after losing recent support.

After hitting a fresh yearly low on Friday, /6EH4 heads into next week on feeble technical footing. We cannot rule out a return to 1.0750/75 before more constructive price action resumes.

/6J Japanese yen technical analysis: daily chart (August 2023 to January 2024)

Slow start for the yen

2024 is not off to a strong start for the Japanese yen (/6JH4), but the good news is that several key events have happened. They include the December Japan inflation report, the January Bank of Japan rate decision, and U.S. data discussed previously.

None of that caused /6JH4 much damage. That said, a break below last week’s low of 0.006781 would also see the uptrend from the November 2023 and January 2024 swing lows broken, setting up a return to the 2023 low at 0.006720. If there was ever a place for bulls to stand their ground, this would be it.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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