uploaded image

US Dollar Technical Analysis: DXY Index Doji at Triangle Resistance; USD/JPY Struggles Out of Wedge

By:Christopher Vecchio - CFA


  • The US Dollar (via the DXY Index) briefly pushed up to fresh monthly highs before the July FOMC minutes undercut price action.

  • USD/JPY rates gave up their gains after the July FOMC minutes as US Treasury yields slumped and US stock indexes dropped into the close.

  • The IG Client Sentiment Index suggests that USD/JPY has a mixed bias in the near-term.



 The US Dollar (via the DXY Index) briefly pushed up to fresh monthly highs before the July FOMC minutes undercut price action. In breaking the July 21 and August 11 highs – both bearish outside engulfing bars, or bearish key reversals – the DXY Index has begun to clear out significant resistance that could pave the path back to its yearly high set in March. But, all is not well: US Treasury yields have started to pullback, even as the July FOMC minutes hinted at the possibility of an eventual taper later this year.

With US stock indexes giving up their gains following the release of the July FOMC minutes, the DXY Index’s gain is less about improving fundamentals and more about the greenback fulfilling its role as a liquid safe haven during times of market duress. Consistent with this perspective, USD/JPY rates gave up their gains late in the session, failing to sustain a move above the daily 21-EMA – throwing into question the likelihood that it is able to fulfill the promise of its recent bullish falling wedge.



US Treasury Yield Curve (1-Year to 30-Years) (August 2020 to August 2021) - Chart 1

As delta variant concerns continue to rage, the US Dollar is losing its edge as a ‘growth’ currency. The drop in US Treasury yields can’t be dismissed, particularly as Fed rate hike expectations recede. Insofar as Eurodollar spreads (September 2021-December 2023 contracts) fell back from their high earlier in the day, from 91-bps to 86-bps, it seems that rates markets have taken on a slightly less hawkish hue.



Chart: DXY Price Index Technical Analysis: Daily Chart (August 2020 to August 2021) - Chart 2

If markets are shifting into a more ‘risk-off’ mindset – not atypical for the end of August and beginning of September – then the DXY Index’s bullish breakout attempt may very well find follow-through, even if it isn’t predicated on improving Fed rate hike odds. The ascending triangle that’s formed over the past month found support at the dual Fibonacci retracements that reside at 91.93 (the 23.6% retracement of the 2017 high/2018 low range and the 38.2% retracement of the 2011 low/2017 high range), with resistance measured against the July 21 and August 11 highs. The break to its highest level since April 1, only to ultimately produce a doji candle on the daily chart, speaks to indecision among traders at present time.




Alongside the pause in the DXY Index, the drop in US Treasury yields and receding Fed rate hike odds have produced unfavorable conditions for USD/JPY rates. Today’s price action saw a failed attempt to climb through the pair’s daily 21-EMA, while an inverted hammer/shooting star formed on the daily timeframe. Momentum remains disjointed at best, with daily MACD trending lower below its signal line while daily Slow Stochastics have turned higher above their median line.

While it is possible that an inverted head and shoulders pattern is taking shape which may ultimately signal the fulfillment of the bullish falling wedge in place since mid-June, USD/JPY rates are very much in ‘no-man’s land’ at present time.




USD/JPY: Retail trader data shows 60.75% of traders are net-long with the ratio of traders long to short at 1.55 to 1. The number of traders net-long is 1.61% higher than yesterday and 72.58% higher from last week, while the number of traders net-short is 7.58% higher than yesterday and 31.23% lower from last week. 

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/JPY trading bias.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on tastylive.com apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.