Forex Update: US Dollar Flexing Muscles

Everyone who follows the foreign exchange markets knows that 2018 has been the year of the greenback. The US Dollar is showing its might against major currencies such as the Euro, British Pound, and Japanese Yen. The supremacy of the dollar does not stop there. It is also dominating emerging market currencies.

In this article, we reveal how the dollar is flexing its muscles against emerging market currencies.

US Dollar/Chinese Yuan Analysis

The US and China have been engaging in trade wars for months. Many say that the US is getting hit hard. However, the forex charts of USD/CNY are telling a different story.

Monthly chart of USD/CNY

The US Dollar is on a five-month rampage against the Chinese Yuan. This started after the market respected the uptrend support. With a higher low in place, the market generated a tremendous amount of momentum that enabled it to breakout of a cup and handle reversal pattern. It looks like we’re looking at the resumption of a long uptrend.

US Dollar/Mexican Peso Analysis

The US Dollar may have been correcting against the Mexican Peso (USD/MXN) since 2017. In fact, the Dollar lost over 20 percent of its value against the Mexican Peso in seven months between January – July 2017. But before analysts can say that the pair has entered bear territory, the US Dollar came back to life.

Weekly chart of USD/MXN

A quick look at the weekly chart and you’ll see that USD/MXN is inside a large symmetrical triangle pattern. This pattern is bullish because it denotes the continuation of the uptrend. In other words, USD/MXN is simply taking a breather as it prepares for the next leg up.  

US Dollar/Malaysian Ringgit Analysis

The US Dollar had an unforgettable 2017 run against the Malaysian Ringgit (USD/MYR). In the span of one year, the greenback shed 13.75% of its value against the Malaysian Ringgit. However, the trend took a 180-degree turn as soon as the calendar year changed to 2018.

Monthly chart of USD/MYR

USD/MYR quickly reversed its direction as soon as it hit the uptrend support during the first few months of 2018. This tells us that bulls are still in control of the market.

The pair remains bullish as long as it is above the uptrend support. That’s because USD/MYR is inside a large rising wedge. Breakout from this pattern effectively ends the uptrend. Until then, we can expect the US Dollar to continue rising against the Malaysian Ringgit.

US Dollar/Indian Rupee Analysis

The US Dollar has been dominant against the Indian Rupee since May 2012 when it took out resistance of 54 (USD/INR). It looks like the uptrend is not going to be over anytime soon as the US Dollar continues its ascent.

Monthly chart of USD/INR

The market appears to have recently taken out resistance of 69. This enabled USD/INR to break out of the cup and handle pattern and resume its uptrend. With no resistance above 69, it’s all blue skies for the market. The greenback is likely to record new highs against the Indian Rupee in the foreseeable future.

Bottom Line

2018 has been the year of the greenback. It is continuously gaining ground against major currencies such as the Euro, British Pound, and Japanese Yen. In addition, the US Dollar is also demonstrating against emerging market currencies such as the Chinese Yuan, Mexican Peso, Malaysian Ringgit, and Indian Rupee.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.