- The dollar is on the verge of a breakdown as other global currencies start to rise.
- The US Dollar Index fell below the 100 level this week, which represented a key support level.
- "A decisive breakdown is likely given a loss of momentum across timeframes," Fairlead Strategies said.
The US dollar is on the verge of a decisive breakdown that would reverse much of the gains the currency enjoyed over the past two years.
The US Dollar Index fell below its all important 100 level this week to a low of 99.47. The decline violated a trading range that has been in play since the start of the year, according to Fairlead Strategies.
In a note to clients on Thursday, Fairlead Strategies founder Katie Stockton said that "a decisive breakdown is likely given a loss of momentum across timeframes, including a new weekly MACD 'sell' signal."
The moving average convergence/divergence indicator is a trend-following momentum gauge that technical analysts use to show the relationship between two moving averages of a security's price.
Stockton uses MACD to capture momentum and trends across multiple timeframes. The indicator appeals to her because it's very black and white, as one line is plotted that signals either buy or sell.
Stockton ultimately expects the breakdown in the dollar to be confirmed, which would happen if the index closes below the 100 level for the second week in a row next Friday.
"We view the move lower as a continuation of the bearish long-term trend that has been in place since the weekly cloud model (shaded area on the chart) was breached back in March," Fairlead Strategies' senior analyst Will Tamplin told Insider on Thursday.
Tamplin highlighted that the US Dollar Index is likely to find support near the 99 level.
The index peaked at just below 115 in late 2022. The decline since then has coincided with a bottoming in the broader stock market, as a rising dollar typically puts pressure on multinational companies and their profit margins. On the flip side, the falling dollar over the past nine months should be a tailwind for upcoming earnings results.
While the dollar falls, other currencies are surging, including the euro, the yen, and the Canadian dollar, among others. The euro is up about 5% against the dollar year-to-date, and Tamplin expects the currency to continue moving higher.
"The breakdown in the Dollar Index is associated with a pending breakout in the Euro, which we also expect will be confirmed next week," he said.