USD: Setting Up a Rip-Your-Face-Off Rally or in Freefall?

There's not much to encourage Bulls in the daily chart of the USD.

The U.S. dollar's relentless decline this year poses a question: is the USD setting up for a monster rally, or is it in a slow-motion crash? Opinions vary, of course, as to the possible reasons for the massive decline: European growth is better than expected, Trump's presidency is going nowhere, the Federal Reserve won't be raising rates, and so on.

The nice thing about charts is they summarize all these inputs into a snapshot. So let's take a look at the daily and weekly charts of the USD.

Daily:

Weekly:

There's nothing fancy here, just the basics of moving averages, RSI, stochastics and MACD. There's not much to encourage Bulls in the daily chart: every attempt to regain the support of the 20-day moving average has failed, and triggered another leg down.

RSI and stochastics are oversold, but as this chart illustrates, oversold conditions can continue for quite some time. MACD may be setting up the beginnings of a divergence/reversal, but maybe not. At this point, betting on a reversal might be a case of catching the falling knife.

The weekly chart is even more dramatic. Judging by the steep decline this year, the world is ending--at least for the USD. RSI is oversold for the first time in 2+ years, stochastics have been deeply oversold for months, and MACD is in a cliff-dive that could end in a belly-flop.

The only shred of bullish hope is the decline has finally reached key support/resistance at the 200-week moving average (MA) around 92, a level that also happens to be support going back 2+ years.

A definitive plunge below this support would suggest the freefall has more to go, while a defense of this level would offer some initial stirrings of support for an eventual reversal.

A quick glance at the open options a couple months out on the USD ETF, UUP, finds significant volumes clustered around strike 24 puts--bets UUP will drop below its current level around 24-- and strike 25 calls--bets that the USD will recover in a sharp rally.

Punters seem well-positioned to hedge a big move up or down--just what we'd expect after months of steep decline to a key support zone.

Is the Eurozone economy and banking sector fixed, and all the EU political tensions resolved? Is the Eurozone doing much better than the U.S. on all fronts? The sharp gains in the euro seem to suggest so. Skeptics might want to keep an eye on the USD charts for a market-sentiment read of these political-social-financial trends.

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