‘Tis the Season For Dollar Weakness

From the Desk of Ian Culley @IanCulley

Bing Crosby dreamed of a White Christmas.

Who hasn’t?

Growing up, I wished for a white Christmas every year. I knew snow was a stretch living in Florida. But a kid can dream… 

This season, stock market bulls hope for quite a different, serene vision: a weaker dollar.

Based on the charts, they might just get their wish.

Check out the updated US Dollar Index $DXY chart:

DXY has respected key retracement levels on the way up and down over the past six months. The repeated touches add to my conviction in these levels.

Today’s breakdown below 102.54 suggests further weakness toward the year-to-date lows. A fall to those former lows would undoubtedly stir tailwinds for global equities, producing joy and cheer among investors worldwide.

The 102 area also carries significance over longer timeframes.

Zooming out on the weekly chart, it coincides with a critical retracement level from the ‘01-’08 decline:

I prefer to expand the highlighted level to a zone ranging from the July low (99.58) to the 2017 high (103.82.) A crayon works far better than a fine pen or pencil in this scenario (it often does.)

Nevertheless, a break below 102 represents a fresh piece of holly in the hat for stock market bulls.

And it couldn’t come at a more opportune time:

December is the worst month of the year for DXY performance over the trailing 42 years.

If you’re starting to feel lucky, it gets better…

Dollar weakness tends to set in just before the Christmas holiday:

More often than not, the dollar chops sideways until the final days leading up to Christmas. That’s late next week.

If there was ever a Friday close to monitor DXY… Next Friday is the one.

Meanwhile, the dollar is falling. It’s undercutting critical near-term levels as it approaches the lower bounds of former structural support.

While I don’t look to seasonals for future market direction, the season is upon us.

All we can do is wait and watch.

Stay tuned.

Thanks for reading.

Let me know what you think. I love hearing from you!

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