USD Index has fallen as predicted – the opportunity to buy currencies against the USD

The post on 16 December suggested a corrective USD index and to watch for opportunities to sell the dollar against major currencies.

Referring to the above mentioned post and this graphic:

This played out as follows.

As can be seen, the index did go lower, not quite reaching the point of the triangle drawn in, and not without a spike higher, however, the time the price took to go down ‘pulled’ the triangle rightward, and the price did end up following the line of the third quadrant line from the first image.

The USD then provided several tests of the high to the left of the orange and pink square in the above chart, exceeding the price, but not following through, finally this week the USD index giving ‘cross board’ dollar weakness and really strong performances of currencies vs. the USD (see below)

forex currency pairs daily charts
Various currencies and the USD Index. Click the image to enlarge.

As can be seen above, yesterday showed strength and there was no indication on any of the pairs (or the index) of a reversal, and today followed through. In future, I will try to catch these kind of moves before they happen and post a prediction in advance of the trade.

It can be seen that after the correction from the first two images, there were actually three further highs, a sort of ‘quadruple’ top pattern which is unusal (double and triple tops are more common). What happened in dollar index was probably a kind of variant ‘triple top’, or two double tops, then the first day sell off of the dollar (yesterday) and the second day sell off (today) can be seen clearly as a big red candle, followed by a gap and another big red candle.

Tomorrow is Non-farm payroll day which can create short term volatility havoc and even be trend changing. It is unlikely we will trade tomorrow, rather let the volatility traders do their thing and work out a strategy for Monday over the weekend.

There are no immediate signs of this USD selloffs abating particularly, but there are resistance and support offered by the lines on the charts above, and the market will, with little doubt’ be revisiting the mid-points or the 40%, 50%, 60% retracement levels of the daily candles that can be clearly seen – a tip I learned (as I owe a great many of these insights to) from Phil Storer of the commodity trading firm Dillon Gage in Dallas, Texas who wrote this excellent book a few years ago.

So I am not expecting much follow through tomorrow, probably quietness until the non-farm payroll, in which case we could see a tremendous completion of this dollar selling pattern (a third big daily candle on each of the pairs), or a correction day, or very little if the numbers are as expected.

If I had to take a direction, I would favour the continuation, but prior to the news and during the news, it is a casino gamble as to what will happen tomorrow, therefore, staying flat (no trade) is a way to protect capital and achieve long term growth.

In such times I am reluctant to join currency moves that have been missed and rather wait out for clearer opportunities.

In the words of Phil Storer (mentioned above) – there are an infinite number of trading opportunities but a finite amount of capitalĀ  -protect the capital!


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