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Chart of the Day: USD index (USDX)

We can look at the USD against other currencies, such as EURUSD, or look to trade the USD against a basket of currencies, which is exactly what the USDX achieves. The USDX basket, or index, is weighted as such — 57.6% EUR, 13.6% JPY, 11.9% GBP, 9.1% CAD, 4.2% SEK and 3.6% CHF. So, while there’s some diversification, over 50% of the variability of the USDX is driven by the EUR.

Chart of the Day - Aug 19, 2019 - USDX, weekly

Either way, if the USDX is moving higher, the USD is effectively rallying against these six currencies.

As we head through the week, I’ll be paying close attention to the USD and, subsequently, the daily or weekly chart given the clarity and structure seen in this timeframe. We see price push back towards the multimonth range highs around 98.00, and it’d not surprise to see a break and close through this ceiling. A close above resistance is key, though, as we’ve seen a number of false breaks, such as the bearish pin bar reversal in late July. Should we see a bullish close through 98.00, it’d therefore likely coincide with a test of trend support (which is part of a bigger wedge pattern) at 1.0936.

It’d also go someway to negate the series of lower highs in the 14-week RSI, which has diverged from the higher highs seen in price.

With all eyes on the Jackson Hole Symposium later this week, a convincing break of the 98 level would be a significant development for markets, although sellers will be prevalent into the September 2017 uptrend resistance of 99.20. While central banks, which can print their own currency, will always desire a weaker currency, the last thing the world really needs is a stronger USD. A positively trending USD will weigh on emerging markets and risk assets more broadly.

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