Major Currencies At Short Term Turning Point

The formation of a neckline for a head and shoulders in the USD morphed into a really sweet move for those long the components of the USD Index (British pound, euro, yen). However, at this point, things seem to have reached a limit and the USD seems due for a bounce. Let’s check the charts first.

The euro is overbought on the RSI and has reached horizontal resistance:

Likewise, the British pound is also overbought and has reached horizontal resistance:

And lastly, the yen is in a similar situation:

Conveniently, the USD has hit a medium term trend line support that is a logical place for a bounce:

So clearly, the US dollar is due for a bounce. But how far will the bounce go? Beyond looking at the USD chart for clues, let’s see where the commercials stand on their USD positions.

It seems the commercial positions represent a mixed picture and present a problem reaching a clear conclusion. The commercials have cleared their euro long positions and to some extent their British pound long positions.

But the pound and the yen long positions clearly need more work. Also, note the USD short position. The best that can be said is that careful monitoring of the commercials will be needed on the USD bounce. Will they rebuild their longs on the bounce (taking the other side of the trade) and be ready for another swing down on the USD or will they clear their positions on the bounce (selling to create the bounce)?

Besides the coming bounce in the USD, it may also mean an extension of the gold/silver moves down (by the way, CME Silver Options expiration is June 25) and the US Bond move down. Take a look at the commercials position on the US Bond. While they are starting to cover their shorts, they are still significantly net short. It seems we may be in for some more “tapering” talk from the FOMC this week, based upon the commercial US bond position.

As always, be careful out there. Timing commercial positions is notoriously difficult, but the charts seem aligned for a change, even if only short term.