With sentiment extremely negative as well as a large volume of end of the word articles, it appears that the US dollar may be set for a surprise countertrend rally.

King World News will not be featuring audio interviews this weekend, but the audio interviews will be back next week. Until then…

US Dollar Set For Possible Countertrend Rally
May 3 (King World News) – Naveen Nair at Citi:  DXY’s weekly momentum has crossed over in deeply oversold territory. This has historically been an indicator of a >3% rally in the dollar in the last 10 years, and is supported by other technical developments as well as broader macro sentiment.

KING WORLD NEWS NOTE: US Dollar May Be Set For 3% Countertrend Rally Off Deeply Oversold Levels To 103

That said, we prefer to wait for confirmation at the weekly close, since NFP today is a key risk to the narrative.

DXY (US Dollar Index)
A few weeks ago, we had written about the significance of the crossover in the weekly slow stochastics indicator for DXY: A crossover in oversold territory has been an indicator of >3% upticks on all 6 occasions since 2020, and also on 7/9 occasions in the last 10y (the 2 exceptions being in 2017).

Overall, the broader building blocks are adding up as well: 

  • We have closed higher above the 100.16 resistance (2024 September low). We also posted a weekly bullish hammer candlestick last week off support.
  • Broader risk sentiment looks positive amidst trade talks, which could support the dollar. We also remind that we remain well below the ~104 levels we saw pre ‘Liberation day’
  • Positioning , while less short USD than before, is still at -4/10 on CitiFX Quant’s indicator.
  • CitiFX Strategy agrees on a potential USD squeeze if hard data is resilient.

Naturally, the NFP print tonight (see Citi Econ expectations here) will be a major risk event, and can derail this narrative with a soft print. As a result, we prefer to wait for confirmation of the cross on a weekly basis.

Longer term, however, we retain our bias of a move lower in the dollar.

Levels to watch: We see resistance only at 103.09 (55d MA), which also represents a ~3% uptick from current DXY levels. This ties in with our expectations from the weekly momentum crossover. This would also mean a return to levels that we were at pre Liberation day.

KING WORLD NEWS NOTE: Resistance On The US Dollar Index Is At 103 With Support At 98

In terms of support, we watch 97.92 (recent lows) – 98.98 level (61.8% Fibonacci). A weekly close below here, on the other hand would be very bearish for the dollar.

What To Do?
King World News note:  Regardless of how the US dollar trades in the coming days and weeks, purchasing physical silver on any weakness is a good idea with the Gold/Silver ratio continuing to trade near the 100/1 level.  That is a level that is unsustainable over the long term.  But for now it provides opportunity for those wishing to purchase the cheapest hard asset on the planet.

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