DXY: Seasonality Suggests Headwinds Around The 2018 Highs

DXY looks set to challenge the 2018 peak, although price action near-term could be stretched. Beyond February seasonality points lower, so how it reacts around the highs could be key as we head into March.

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We can see on the daily chart that yesterday’s bullish expansion candle broke above key resistance. As the trajectory from the 95.16 low outperformed the prior bullish leg, it suggests underlying momentum is increasing and DXY could be headed for the 2018 highs.

However, given its 8-consecutive bullish session closed above the upper Keltner, we’d prefer to wait for a price action to consolidate before hopping onboard the move. Ideally, we’d like to see prices hold above 96.68 on lower volatility to allow for a better reward to risk ratio.

 

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To trade this theme, we can consider pairs with a strong correlation to DXY such as EUR/USD, AUD/USD and NZD/USD for short ideas, or USD/JPY for a potential long. It’s comforting to know that seasonality favours a positive finish for February, although March and April tend to point lower for the dollar. For this reason, we think how prices react around the 97.71-97.87 highs are key as we head into March.

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