As we head towards month end tomorrow it is worth looking at what could be a pivotal medium-term chart for the $.
That is the monthly chart of the BBDXY (Bloomberg USD Index). Why the BBDXY and not the DXY?
2 reasons
The first basic reason is that the technical developments on the BBDXY are at the margin more compelling and clearer.
The 2nd reason is that the BBDXY is a broader index.
The DXY dates back pre-Euro after which all the component currencies were just amalgamated. That means that 57.6% of the DXY is made up of the EURO and 77.3% is European currencies (GBP 11.9%; SEK 4.2% and CHF 3.6%). The balance is made up of JPY 13.6% and CAD 9.1%
The weightings in the BBDXY are very different:
EUR 29.28%
JPY 12.61%
CAD 11.54%
GBP 10.19%
MXN 9.41%
CNH 7.0%
CHF 4.72%
AUD 4.39%
KRW 3.26%
INR 2.81%
SGD 2.52%
TWD 2.28%
So let us look at the chart
The Trump 2.0 path has been very similar to the Trump 1.0 path
Between October and Dec 2016, we saw a low to high move in the BBDXY of 8.3%
Between Oct 2024 and Jan 2025, we saw a low to high move in the BBDXY of 8.3%
In January 2017 we set a marginal new high and then fell to post a bearish outside month. To post this bearish outside month it needed to close below 1,236.57 and closed at 1,234.36
In Feb 2025 we set a marginal new high and then fell such that we may post a bearish outside month. To post this bearish outside month it needs to close tomorrow below 1,291.87 and is presently at 1,292.03
IF that happens, we will also have the added technical development of posting it off a near perfect 76.4% retracement.
We should also remember that even if we get this close it is a MONTHLY reversal i.e. big picture.
That does not preclude some periods of USD strength. In fact, after the reversal in Jan 2017 the BBDXY actually closed marginally higher in Feb before then falling for 6 months in a row.
However, the expectation if it does complete this reversal is that we could, in the months ahead, retrace all the gains seen since the 1216 lows seen in Sept 2024 over the next 6-9 months.
