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US Dollar Drops as the S&P Drives, Crypto Finally Begins to Pull Back

USD, S&P 500, Bitcoin Talking Points:

  • Markets are gearing up for the Jackson Hole Economic Symposium later this week.
  • The most obvious build-up has been in USD weakness and US equity strength; but even crypto markets have appeared to be bid in anticipation of a dovish bias.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

The US Dollar continued to fall in Tuesday’s session, furthering the move that started last Friday just after the USD had punched up to a fresh nine-month-high. While taper fears were running high last week after the release of FOMC meeting minutes from the July rate decision, those fears have been receding this week for a few different reasons. Perhaps the most obvious is just how dovish the FOMC appears to be, generally speaking; but more pertinent as far as timelines are concerned has been the continued rise of Covid numbers being driven by the delta variant.

With an uber-dovish Fed and a very likely reason for kicking timelines on taper back, markets have been driving in a singular direction as the USD has dropped while US equities have jumped up to even higher-highs.

In the USD, a big spot of support is now coming into play after the currency cut through a couple of key supports in the early part of this week. At this point, the USD is finding buyers in the 92.80-92.90 zone on the chart. This was an area of previously-unfilled gap left from early Q2 trade, but it came back into play in early-July and the gap was eventually filled later in the month. Since then, however, this zone has remained as pertinent with multiple support/resistance inflections.

Below this area is a grouping of confluent Fibonacci levels, plotted around 92.45 that was in-play as support a couple of weeks ago.

US Dollar Four-Hour Price Chart

US Dollar Four Hour Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

Stocks Pop Ahead of Jackson Hole

In anticipation of the monetary punch bowl staying out for at least a little while longer, stocks have continued to ride a wave of strength as the US Dollar has sold-off over the past few days. The Nasdaq 100 illustrates this fairly well: The index pushed down to a fresh three week low last Thursday morning. Prices tested support overnight but when the US session opened, support started to play out and Friday brought a big day as prices pushed up towards resistance.

But it was this week’s open when prices really tore away, breaking out to a fresh all-time-high and not looking back. The Nasdaq 100 has gained as much as 4.5% from the low last Thursday; an astounding move over any three-day-period, much less considering our current backdrop.

Nasdaq 100 Four Hour Price Chart

Nasdaq 100 Four Hour Price Chart

Chart prepared by James Stanley; Nasdaq 100 on Tradingview

S&P Catching Resistance at Fibonacci Expansion

The S&P 500 similarly put in some serious incline from that Thursday low. The move in the S&P has been a bit slower, however, as we’re looking at a 3.2% gain from those Thursday lows versus the 4.5% looked at above.

In the S&P, there’s an element of resistance in the current zone, taken from the 161.8% Fibonacci expansion of the July pullback. That level came into play yesterday and has since helped to stall the move.

To learn more about Fibonacci projections, check out DailyFX Education

S&P 500 Four Hour Price Chart

SPX ES SPY Four Hour Price Chart

Chart prepared by James Stanley; S&P 500 on Tradingview

Crypto Pulls Back

It’s been a big month for crypto. It was in late-July when Bitcoin was testing below the 30k level. Yesterday marked just a little over a month from that support test, but Bitcoin touched the 50k level to mark a move of more than 67% over that span of time.

That 50k test at the psychological level has led into a bit of a pullback. I had looked into the matter yesterday, and the ‘s2’ level that I had looked at in that article is now in-play.

To learn more about psychological levels, check out DailyFX Education

Bitcoin (BTC/USD) Four-Hour Price Chart

Bitcoin BTCUSD BTC/USD Four Hour Price Chart

Chart prepared by James Stanley; Bitcoin on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX