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THE DX BULL MARKET


donaldprice

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Following the DX as most will know, is almost defined as an indicator for major dollar crosses in terms of direction, most notably € $, $ Y and £ $. Lets first discuss technical's. Looking at the daily we are closely approaching a major resistance trend line that began on 2nd December 2015, of which has been acting as resistance to the upside. As for support we have a trend line all the way back to February 2015. Now given the amount of bull positions on major indices from non-commercials, this suggests to me that the DX may not continue its current trend. It is also becoming also evidently apparent that a rising trend line dating back from May this year to now is also currently supporting the present advance on the DX. Therefore to summarise the technical. If we break the descending December 2015 trendline, then we could indeed head higher, but failing that we could see an interesting reversal. I would also like to add that current data suggests that the amount of short contracts has been increasing as well on the DX.

From the fundamentals, don't know if anybody has started to notice, but data since early September has not been very good out of the US. From a logical stand point, the odds of a rate hike in November 1 week before the election seems to be more of an illusion, than reality, lets be realistic, lets suppose Trump does get in, markets already have labelled him as a potential disaster, whatever your own views, it has no relevance, it is what everyone else thinks that count. Yellen has without doubt also considered how a strong dollar also will impact emerging markets as well as other western economies, not to mention how it would affect American investment over-seas, since weaker currencies will produce smaller change when cooperates try and bring back revenue. Apart from the US, who else is talking about raising rates? Yellen is on her own with her decision making. I am not suggesting that the US wants to cut interest rates and re-start another QE program, but I would not dismiss any scenario right now.

Charts Below.

P.S anyone else who wishes to share their own views please do.



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I don't follow this market that closely  and certainly prefer to trade the primary FX pairs.  The main reason is that this is an historic basket of currencies against the USD that may not be truly relevant anymore and the majority pair is EURUSD (57% weighting) anyway.  For technical analysis the fact that it contains 6 (or is it 8?  Can never remember) FX pairs means you get a smoothing out effect of averaging, which may not conform to standard analytical methods as well as a highly traded primary market.

 

That said I concur with your assessments.  Overall long term I am bullish and I believe the USD is in an EWT 3-4 (pink labels) retrace (may have already concluded). However I see several charting formations (all Triangles) beyond the one you have, which offer several scenarios as follows:

 

  1. Your scenario which may either breakout of the upper Triangle line (but I think that would require a breakdown of stocks and bonds) or rebound back down off it resulting in a rally in most if not all USD pairs against the USD.  Note that the lower Triangle line forms an apex that price is coming very close to.  Conventional charting wisdom holds that a valid strong Triangle formation ought to breakout around about 2/3 of the way along the Triangle length so this one is not so strong in my view.
  2. A rebound back down from the upper Triangle line towards the right angle Triangle lower line and rally from there.
  3. Same as above except dropping to the third Triangle option and making a fresh wave 4 low before rallying.

If I had to choose, and I may change my mind as the market progresses, I'd go for scenario 2 (as shown).  However this is a biased view as I hold it because it fits with my analysis conclusions elsewhere.  Clearly if scenario 1 kicks in with a breakout then all bets are off...

 



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USD DX falls back below the Weekly upper Triangle line to close the price gap (it it closes the hourly candle) and stays within the Triangle on the Weekly chart (tail spike allowed) so assuming the USD continues post NFP weakness the previous post scenarios 2 & 3 are in play.

 



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I could buy a retest of the Triangle line resistance  but find a rally back up and through hard to see.  All the signals now point towards a period of weakness for USD unless something dramatic happens in stock and bonds before the next FOMC.  As said before Q3 earnings are now the main event.

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Sorry Mercury, what i meant to say is that this would occur in the medium term, not in the short term, not enough DX contracts produced to allow this momentum to take hold, DX most likely head lower for a while, but then again be interesting to see if gold rebounds as a result, which i am not too shore that the bear market has concluded for gold as of yet. 

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I agree on Gold  my reading is as best we could see a EWT3-4 of wave C retrace before a final drop to conclude the larger scale EWT1-2 and then a strong rally.  Although there is a school of thought that hold Gold is in a bubble just like all other assets...  Re USD, I agree short to medium term drop off before the long awaited USD rally but that's for another time.

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Chart speaks for itself really, previously posted scenarios remain but a confirmed move lower off the Triangle resistance line next week eliminates rally scenario in favour of retrace lower before long term rally.  Tracking USD will be critical to show correlation with Stocks and Bonds.

 



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Not sure about the Fib drawing , I'd only draw that one from the wave 3 top to the wave 4 bottom.  In any case I think the stronger play here is the Triangle formation (good on both the weekly and daily charts).  The market may put in a retest of the breakout resistance (can even be a so-called hard retest - in that it breaks back into the Triangle congestion zone before resuming in the direction of the breakout) and then rally away.  Stocks seem to be rallying just now (Triangle breakout retest?), which could drive USD back down and EURUSD also rallying, possible also back to the Triangle breakout.

 

Not sure the FOMC minutes will shed much light on anything given recent events.  It is surprising in a way that poor Q3 earnings and poor Jolts job opening data causes a rally in stocks but that is the crazy world we live in, I guess some people are assuming lower probability of a Fed rate rise now...

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It seems to be hovering around that fib level for now. Fundamentally the Fed is in a bit of a jam come November as if they dont raise rates this will look very bad on their part unless she emphases December to be on, which if i remember last year we have huge sell-offs occurring across all markets, although china was to blame a lot for this. For me i would be looking out for a nice shooting star formation if their was a significant retracement, but until those fed minutes come out in the next hour, pointless to do anything. Currently speculators are heavily betting the DX will keeping on rising based of FED rate expectations, but interesting that commercials are still heavily net short. 

Just had this article pop on my screen, and you may have seen it but just in case link is below

http://www.bloomberg.com/news/articles/2016-10-12/hsbc-there-s-now-a-very-high-chance-of-a-severe-fall-in-u-s-stocks?utm_content=markets&utm_campaign=socialflow-organic&utm_source=facebook&utm_medium=social&cmpid%3D=socialflow-facebook-markets

 

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Dont think we should get too exited with the dollar today, although now clearly Chinese figures will now be on the markets radar, any excuse for Yellen not to increase rates. However it seems that the DX was just overbought and therefore consider this nothing more than a retracement, even if it breaks the current channel i have drawn. Although i suspect their will be more doom and gloom to come, the FED will try their best to keep the market on their toes, overall i dont see a rate hike in November or December and the excuse will be the same all over. This over-caution is a result of a mistake in the first place of stating that several rate hikes would occur and since January of this year many economic downturns have occured and the fragility across europe, Brexit and now China their is an even greater reason to doubt their direction of monetary policy. 



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I suspect your channel will fail to support  as a rally against USD takes hold in the short term.  I will be looking for a retrace in EWT3-4 back towards the Daily Triangle breakout support level, which would provide an excellent low risk Long entry if set up right.

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  • 2 weeks later...

So with all the decent market figures from the US looking decent including inflation present 1.5% not to mention Trump losing in the polls at present and weeks away from the US elections, seems the DX is on track for further gains. However immediate resistance on the daily/weekly chart comes around the 100 level. If we surpass this level, which i am confident that we will, then we will be heading past 2003 levels. The current net long positions have increased dramatically each week according to the CFTC data, hence why this is having a significant influence on a basket of currencies. For me any significant pull backs are simply buy opportunities, i do think the DX is going to be a brilliant performer this year and therefore gold will suffer as a result, unless oil of course starts dropping of which then you will see potentially money coming back into gold.

 

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