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What is the USD doing?


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So looks like the DX is at a pivotal point and so far, on the short term timelines (1 hourly) price has been rejected back down.  Don't yet know if this is a pause before a break through to the upside of a trend change but should know soon enough.  Markets move in waves (or zig zags if you prefer) and to me the case for one of these is strong prior to a major Bullish USD motive rally.

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Another higher high but then another potential break lower and now a potential retest of that breakout zone.  If this retest fails we should see a strong Bearish phase.  Yesterday not only produced a hit a rejection on the Fib 62% but also a spinning top candle together with a strong NMD.  Turning point indicators?

 

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The EWT1-2 did indeed emerge as suggested it might and was followed up with a clear 1-5 wave bearish move down to Wave 1(brown).  A strong retrace/relief rally was capped off at the Fib76/78% prior resistance with NMD.  Now a sharp drop away, inverse of EURUSD, and, like EURUSD, we are likely to see a small 1-2 retrace to close the 1 hour chart gap before the next strong bearish move.  I anticipate a sustained period of USD weakness, however DX will be quite zigzag I think with at least a strong wave A, Wave B Wave C to come before a very long term Bullish phase.

 

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With most USD crosses going against the USD it seems like this is about USD weakness rather than any other currency strength (or politics or news or whatever).  Time to look at DX again.  As previously noted, DX looks to have completed a wave 1 (blue) up and is now set for a retrace bearish move to prime the pump for a massive rally to come.  And it could be a fairly significant retrace of the Weekly chart is anything to go by but I will consider that only when the retrace is well and truly in play.  I need to see a breakout of the Daily chart narrowing channel support line to confirm this scenario and that is fast approaching now.  Perhaps Trumps posturing is impacting the USD more than hurting the Chinese?  Who cares?  I will simply follow the price action within my methodology and and trade accordingly.

 

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After a lower high and lower low it looks like a lower high at resistance level today followed by a possible small 1-2 retrace, not yet confirmed.  Looking for another drop tomorrow and swiftly to show a wave 3.  And if it does then most USD crosses will follow suit.

 

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USD has remained in rally mode but is it motive or just a retrace?  The market has just hit resistance in the from of a monthly flag resistance line and ST Fib 78% level with EWT1-5 plausible and NMD.  A breakout of the ST lower channel line is encouraging for the USD Bears.  A break of the Daily chart supporting channel line would confirm a medium term trend change.

The EURUSD is bouncing off Fib 76/78% support zone and although there is scope for another leg down for technical reasons I feel like this is a turn I want to be in with close stops guarding against than final leg scenario.

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  • Small 1-2 retrace after a channel breakout (slightly adjusted lower line).
  • Retest failure on the lower 4hour/hourly channel line.
  • NMD at turn point (Green B)
  • Large scale Flag resistance line held firm (2 short term test failures & 2 spinning top candle price action

Daily candle not yet finished of course but is encouraging in context and multiple USD pairs at turning points.  Drop below the 9730 level would be encouraging and if this is a wave 3 it should move pretty fast.

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Guest Nash

Hey mercury

Its been a long wait huh for the dollar to finally do something. I have to admit I took large profits on eur/usd at 11,175 on the 3rd of may. Started that trade at 12,400 on the 16th april 2018.  Still own some puts though, but im starting to wonder if its ever gonna just drop. I think if it doesn't move this month with important European elections then this thing may hold out or even pull back until last quarter of this year. Anyway good luck

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Will it ever end indeed, @Guest Nash.  If the market pushes up through the Monthly chart resistance channel line (what I think of as a large picture Flag) then I will certainly reverse my position and go full Bull, which is my long term bias anyway.  However just as with Oil (see my recent post on Brent Crude if interested) I expect a significant retrace (bearish) prior to this major rally, based on Elliot Wave Theory.  Today we saw a marginal higher high and drop with a pin bar spike (bearish candle price action) that created a double top.  Critically price then dropped and closed below my monthly/weekly chart resistance trend line.  If it stays below tomorrow this line is still valid, despite the spike through.  If this was a turn then I will be looking for a short term EWT1-2 retrace before a strong move down through the Daily narrowing channel line, a break of which will set up that bearish retrace move (bullish EURUSD) that I remain minded to favour.  However USD (and associated main pairs)  will need to make this move stick now or the USD Bull is on.

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Personally im doubtful we will see a significant pull back. I think 9,500 worst case scenario. Any bottoming pattern and I will scramble to get back in. For the time being I will sit back and relax, not going to play dollar weakness trade.

 

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@nash3

If you have seen my EURUSD post it will probably answer your question but in any case see below for the DX view.

I assume your view on a 9500 is based on the parallel lines you have drawn.  You will see from my charts below that my equivalent upper line is drawn differently and I don't see a credible parallel so for me this is a narrowing channel, which will resolve with a breakout one way or the other, not withstanding a fakeout, all to common these days.

Similarly to EURUSD there are a number of credible retrace support zones, the first one being a very long term level, albeit one that has been broken through significantly twice relatively recently.  My monthly chart is perhaps more interesting, to me at least, as it describes the case for the USD Bull.  I don't see a scenario where DX falls back down through 8000, I'd say 8500 is the floor of any bearish move and this is unlikely at present.   Nevertheless another test of the lower flag trend line cannot be ruled out until there is a breakout of the upper one so it stays in my scenario list to be tracked.  More likely then is a retrace to one of those levels on my Weekly chart to set up a rally through the Flag and on up.  The next likely scenario, still a high probability given current price action and market uncertainty, is a breakout to the upside from here.

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Rally progressed on to a Fib 88% turn but at a lower high so far.  Now looking to break back below my Monthly chart Flag resistance line.  If this does break and close back below this line today (end of the Month) then the line is still valid and that potential USD bearish retrace is still on.  I wonder how a period of USD weakness would impact the markets?

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The case for a USD bearish retrace is growing, though still not a conclusive turn yet.  The upper resistance levels (lower for EURUSD) are consistent with a Big picture Flag formation, a breakout of which would signal a rampant Bull market for USD.  However before that I am projecting a bearish retrace to set the rally up.  The shorter term channels look Bullish (Bearish EURUSD) but if you look at the Monthly Charts you can see that Flag channel, which is thus far not broken.  In addition to the signals I have posted on recently (see above and on relevant USD pair threads) recent price actions describes a series of failed tests of this Flag.  3 failed attempts to breakout in fact, which is often a signal of a capitulation and turn (the third attempt is often successful if a breakout is on but the reverse is true of a failure).  Shorter term charts have offered some early entry point already but I wont be sure until I see a break out of the Daily narrowing channel on DX (Weekly on EURUSD).

 

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DX is fast approaching the bottom of near term support.  There are a few additional lines of support below but most significant for me is the Daily Chart channel line.  A confirmed break of this opens the Bearish floodgates.

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Consolidating the view of the various USD pair into DX I see a clear confirmation of the Bearish phase I have been tracking.  From the initial short term (1 hour chart) channel breakout (1-2 turn with NMD) to the down side the market has fallen is a nice 1-5 wave form to put in a quick 1-2 retrace that almost carried to the Fib 50% in a pin bar spike and drop.  Another quick retrace to retest the Weekly chart Channel line with a failure and fast drop through support, now resistance.  On the larger time frames you can see the Weekly channel breakout with a close below and NMD.  At this point I anticipate a fast move down to complete a wave A and the the A-B-C that will be the mirror of EURUSD.  Might get a short term retest of the recent support break (now resistance zone) and if we do that could be a good point to get short/long depending on the pair you are looking to trade.

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USD is approaching a retest of a weekly channel line that was broke back on June 6th.  May not quite carry to the line on the 1 hour representation and has just tested the horizontal resistance line with a failure.  I am expecting another leg up before this gets Bearish again, mirror of EURUSD and a breakout of the short term retrace Triangle would be a good signal that the turn has taken place.  Obviously a break of the previous low around 9600 is key.

 

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So the retrace carried on higher on USD and ended the day at my final turning point option on EURUSD (see separate thread).  I have reevaluated DX with a new position for my Weekly channel line, that now more closely mirror EURUSD.  USD (DX) seems to have ended the week with a retest of this line and short term rejection, not yet confirmed.  However if price action on Sunday and early Monday moves away from the retest resistance zone then confirmation will not be far away and if this is turning into a wave 3 it could move swiftly.  With FOMC coming up next week that could prove to be the short term trigger for a resolution to this resistance point.  I will be seeking an earlier indicator than that in the coming days.

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FOMC is done and no real surprises.  DX has completed a failed retrace of the Channel (Triangle) breakout.  Next stage should be a medium term retracement Bear phase that I might at this stage expect to carry to the Fib 62% and a retest of the lower Weekly/Monthly channel/Flag line at around (9100-200).  A break below the 9600 will confirm.

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As mentioned in my recent USDCAD post, USD appears to be making a turn to the down side off overhead near term resistance.  This was Support that was recently broken in what I believe is a wave 3 of a wave A down.  Wave 3s are fast until we get to a potential halfway consolidation flag but there is a bit to go on that just yet.  Retraces on a wave 3 are shallow in nature, however it is possible we could see another leg up to the Fib 38% resistance zone.  A break below the previous low would set up a fast Bearish move across all USD pairs (bearish USD that is).

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Just to cap off mt FX posts with an overall DX reading.  Again 2 options are evident:

  1. a shallow retrace is done and we are about to head lower
  2. another leg up to the Fib 38% is on the cards

Note, EUR is the key driver of this basket so EUR and a few others, perhaps CAD and JPY could all drive the retrace while GBP goes the other way.

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To summarise USD pairs, most will confirm I feel, although USDCAD and USDJPY may not, I see a test of the Fib 62% and associated resistance zone before a drop to close that small price gap and then on down.  Hopefully USNFP will resolve this so we don't have to wait another weekend to see what might happen...

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So that alternate set up I referenced on my GBPUSD thread just before the US NFP release seems to have triggered now and looks like this:

  • The move down to the June 25 turn was a wave A with an internal A-B-C
  • The current rally is a wave B with possible turning points at the Fib 76/78% (weekly Flag top line) or Fib 88% (retest of the up-sloping prior rally channel line) 
  • After this would come a wave C bear move but the whole move may be complex, with several twists and turns.  This might accurately reflect the inherent uncertainty surrounding the underlying health of the economy; geopolitical events; Central Banks return to uber dovishiness and so on.

On the one hand it is disappointing for USD Bears like me but I have covered and avoided losses; on the other I managed to go Short Precious metals as a hedge against just this case and if the wave B does materialise then a better short USD will present itself so am fine with it overall.

Let's see...

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Unsurprisingly the USDX is rallying towards those 2 resistance points previously mentioned and mirrored on EURUSD.  Surely these are make or break for the USD long term?  Figure Gold/Silver to continue down at least until the USD picture (or rather the Fed policy picture) to be resolved.

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At face value it looks like USD topped out at a wave B (green) just short of the monthly channel line (down sloping) and the Fib 76/78% resistance zone, all perfectly reasonable, the market turns when and where it will.  We have seen related turns in several USD pairs as well.  However I do have one watch out on this, which is that until I see a retrace with a lower high and drop away I will remain nervous.  If this is a wave B and turn into wave C we can anticipate a strong bearish phase for USD but markets do not move in straight lines and at the beginning of such a move we may see a deep pull back int he short term.  This of course offers a good chance to get into the move if you missed the initial breakout.

On DX in particular, and on EURUSD as well, I have a concern that because neither of these markets found their key support/resistance levels for the turn they may put in a higher high/lower low, respectively, and test these levels before beginning that strong move.  I have less concern about GBP and AUD as I think their turns look more solid (and EURGBP is looking like a good Short, so GBP could enter a period of relative strength vs EUR).  USDCAD may also be a bit suspect.  If EUR and CAD were to put in higher highs, probably USDJPY as well (it is looking a bit more positive that the others, maybe related to stock bullishness), then DX could put in a higher high while GBP does not.  AUD is not part of the basket so not relevant except as a general, broader, USD indicator like all the USD pairs.

So net I have 2 scenarios for USD/DX (and EURUSD, and maybe USDCAD😞

  1. The turn has completed and carries on down fast and strong but not until we see a small, short term retrace
  2. The recent turn was an initial wave A (Brown) that requires a B-C to complete the larger wave B (green) at stronger resistance levels before the wave C Bear truly begins.

Again note that I see this borne out by potential similarity on EUR, JPY and maybe CAD but likely not GBP.  And if this does happen then probably Gold/Silver takes another leg down (more on that later).

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