Talking Points:

• US Dollar Technical Strategy: If We’re Unable to Turn Higher, Downside is Natural
• He Said What?!?!
• A Break of Support Could Bring a Flood of USD Selling

Going into the month of June, the US dollar appeared to have everything going in its favor for significant appreciation.

First, there was a belief at the close of May that the Federal Reserve was on the path of around two interest rate hikes in 2016 followed by a handful in 2017. Second, fear surrounding the European Referendum vote on June 23 led many to believe that the US dollar would strengthen alongside the Japanese Yen in a risk off trade. So far, only half of the second prediction has come true with Japanese Yen strength and Friday brought a surprising view to light from an influential Federal Reserve member.

James Bullard, president of the St. Louis Federal Reserve Bank, noted on Friday that he was the low ‘Dot’ on the Fed’s notorious ‘Dot Plot.' How low did he go? As per Bullard, the Federal Reserve should only be looking to hike one more time until 2018.

Last year, markets became uneasy when then-Fed President of the Minneapolis Federal Reserve, Kocherlokata recommended negative interest rates and given how long into the future Bullard wants to keep the Federal Reserve discount rate below 1%, we could see a similar fallout for the US Dollar.

Multi-Year Chart on US Dollar (Click To Enlarge)

Now, looking at the US Dollar, this has been a pitiful month. The US Dollar has weakened from June’s open, and most bids are soon met with more aggressive offers much like we saw on Friday. Additionally, when looking at the long-term chart above, you can see that an inability to surmount 12,000 could be the beginning of a sharp move lower.

The Fundamentals Are Revealing What the Technicals Have Been Showing

The chart above shows how aggressive the move lower has been since February. The Bearish channel (red) has done a fine job of framing price action. The top line that we recently turned down from around 12,000 at the beginning of the month will continue to be resistance and only a break above this line would turn the technical view from bearish to neutral. Additionally, a breakthrough 12,000 could change the picture from neutral to bullish.

The opening range of June was a wild one. We had a 200 point range with an ATR(5) hovering around 60 points at the beginning of the month. While the last few days have shown us retracting the bear move to open the move, there is a lot of volatility expected as we endure the EU Referendum on the 23 of June.

June Support & Resistance Levels As of June 17, 2016

The opening range low is 11,798 while the opening range high is 11,998. These levels bracket sentiment perfectly as the key resistance we’ve been watching (highlighted on the chart above) is the 12,000 zone where we’ve seen many pivots since topping out in late January.

As dire as the fundamental picture has become for the greenback regarding expected interest rate hikes (a fundamental driver of currency strength), a break above the 12,000 zone would turn all attention to further US Dollar upside.

In binary fashion, a break below the opening range low of 11,798 opens up the key 2016 low of 11,672. While this support range of 126 pips is large, a break below there could bring a move to the previously mentioned 11,325-11,095 zone.

There appears to be significance around the 11,800 zone, which is ~61.8% of the May range and also the previous resistance of the corrective price channel (red) shown in the chart above.Therefore, the hold of that zone was a short-term bullish development that has resulted in a push of ~11,900 where the Weekly Pivot resides. Further, a break below this level would be a blow to the US Dollar bulls that were just beginning to regain confidence.

Either way, given the event risk coming up, we can expect whichever opening level range breakout we receive will bring out an aggressive follow through.

Shorter-Term US Dollar Technical Levels for Friday, June 17, 2016

For those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours of trading.