A lot of thought goes into building a fundamental analysis for any given market, but that usually means the feedback has a bit of a shelf-life. The feedback from a technical analysis on the other hand can be invalidated by the close of the next candle (depends on your timeframe). Towards the end of the last trading week, we received the latest US GDP print. Market participants were watching closely for this report, as it had the potential to be the second consecutive quarter of negative GDP which is considered a crude estimation of when an economy can be considered to be in recession. As was expected the GDP print was negative, but not as expected financial markets pushed forward with a broad-based Risk-On sentiment.

Fundamentally the US economy is weakening because the US consumer is being assaulted by both high inflation and the rising interest rates meant to fight said high inflation. The spillover effect will be weakness for the economies that export to the US and eventually capital flight from those countries when investor sentiment sours. Needless to say, the market reaction to the last Fed rate hike and subsequent negative GDP print caught me completely off-guard. I put my money where my mouth is, so that means I had to realize losses last week. I made a last-minute pivot on Friday to go Risk-On with my exposure, but it was only enough to recover a small portion of the loss.

Going into this trading week I needed new targets, so I started with a wide view and zoomed in from there. Starting with the 15 Year Chart (right panel), we have a fibonacci extension with the 50.0% level highlighted in blue. The chart illustrates that since 2017, the 50.0% level on the fibonacci extension has acted as resistance to the price of the Dollar Index. We finally have a breakthrough of the resistance level in June and again in July of this year (see 1 Year Chart). The final signal that will confirm the Dollar Index had a breakout and not just a breakthrough, would be the price treating and old resistance level as a new support level.

Firstly, if the Risk-On momentum that we ended last week with, continues into this week then I expect the dollar to push lower towards the 50.0% on the fibonacci extension. Secondly, if the support level holds the breakout would be confirmed, and I would feel a lot more confident taking on more exposure when I see a potential move higher on the dollar. A pivot higher in the dollar would also signal a pivot in investor sentiment towards risk aversion. This would put financial markets back in-line with my fundamental analysis, which is one of a flight to safety in an uncertain economy.