Dollar Death Cross Haunts Currency Traders Amid Three-Week Drop

  • Index's 50-day moving average drops below 200-day measure
  • Pattern signals potential for more losses, BTIG says

Currency traders, beware -- there’s a scary chart pattern haunting the dollar. It’s called the death cross.

The phenomenon is financial-market argot for when a short-term moving average falls below a longer-term measure. In this case, the 50-day average of the Intercontinental Exchange Inc.’s U.S. Dollar Index declined below the 200-day this week for the first time since September 2013.

The death-cross term is used in technical analysis, where analysts study trading charts to forecast changes in an asset such as a commodity or currency. This pattern has a track record as a predictive tool in foreign exchange: two years ago, it preceded a decline in the dollar index to an eight-month low.

“We’ve seen a significant loss of momentum in the past few months for the U.S. dollar,” said Katie Stockton, chief market strategist in New York at BTIG LLC, a global brokerage. “It highlights the fact that we have seen a short-term breakdown in the dollar relative to a lot of other currencies.”

The dollar index rose 0.6 percent to 94.29 as of 11:47 a.m. in New York. It’s poised to fall for the third straight week as traders trimmed bets the Federal Reserve will raise interest rates this year. The losses have pared its advance this year to 4.5 percent.

In September 2013, the index fell 1.6 percent within about five weeks after the crossover. The 50-day average didn’t rebound to exceed the 200-day until July 2014.

For an idea of where the gauge may go next, investors should look to the 92-level, where it’s bounced off previously, according to Stockton, vice president of the Market Technicians Association, which has 4,500 members worldwide.

The chart also shows a longer-term pattern, known as a triangle, that began in March and that may precede a surge in volatility and reversal of the dollar’s bull run, she said.

Before it's here, it's on the Bloomberg Terminal.