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What is the USD doing?


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You may turn out to be right there @nash3, and certainly it is the right way to think of it in my opinion.  However that is a daily chart you have posted and we have not, as yet, had a daily candle close above the resistance zone, which would be critical in my methodology to declare a breakout.  Even then you have to watch out for fakeouts, of which we have too many these days, probably due to algos.  In addition I have a weekly chart trend line that is above your daily and I think of the weekly as stronger/more reliable that daily in generally, plus my line has many solid touches, including a prior pivot, so until that is broken (weekly close above, barring fakeouts) I will not declare a breakout.

A reversal here will be just as telling as a breakout.  It is a crucial point for FX I feel.

 

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I wouldn't worry about that @nash3, all part of the game.  As I said yesterday, your assessment was perfectly valid, given the price action.  I had this as a credible scenario too but favoured the bearish turn because we were due one according to Elliot Wave Theory (markets move in zig zags); the resistance was very strong with the dual resistance trend lines confluence and my long term thesis is that USD will only rally hard when the financial house of cards collapses and we aren't there yet.  Add to that the expectation of further Fed rate cuts and maybe more accomodative policy, surely elevated on the poor Manufacturing PMI reading (first below 50 in a long time I think), and the reason why investors are favouring USD is diminished, perhaps sufficiently to drive a bearish retrace of some significance in the medium term.  Note that the above is a combination of fundamentals and technical analysis and my call was posted before the turn not after.  Note also that my fundamentals thesis is predicated on an eventual hard recession or worse, hence the need to constantly assess this with data and price action, which is just sensible market analysis for me.

While we may not wish to trade the exact turning point, for me it is about seeking to identify those potential turning points and being prepared to take advantage on confirmation.  The earlier one can catch a move the lower the draw down exposure.  In addition price action has to conform to my road map or I need to reassess my thesis.  This is simply how my methodology work.  Others do things differently, no problem for me.  I find it most interesting comparing opinions with people who use different methods as it either confirms strongly my own or gives pause for thought.  Alas we do not have enough of that on the forum at present.

But we are not confirmed in the turn yet.  I will want to see a short term relief rally that turns below the recent highs and then a strong bearish phase after than and ultimately a breakout below my weekly lower channel line.  Not an unclosed gap on DX, probably we will see this closed before the bear gets going.  I am seeking to trade on several FX pairs with USD so will be looking for similar moves to get Long, or add to Longs.  Maybe this is the one I have been looking for, I hope so, not just for the excellent trading opportunity but also because it sets up the end game.  The next day or two will be important to nail on the turn.  The weekly candle at the end of the week will be telling too.

The important thing here is not who was right and who was wrong on the specific call but that the directional trend turn is observed so we can all trade with the trend with confidence.  Assessing this is helped by people with differing views discussing these view, based on their own methods, and considering all the options.  It is about discussing what the market is telling us not critising other peoples methods just because they don't fit with your world view.  Therefore I for one would encourage you to keep posting you opinion and get input on it to either support or suggest where you might be at risk.  This, for me, is what the Forum should be about.  It only works if people contribute and refrain from trolling.

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The end of the week brought what looks like a wave 1 turn, right at the last chance for the channel top and down sloping resistance trend line to act.  A break of the lower channel line is needed to confirm this but we have seen a break of GBPUSD channel line and strong moves from USDCAD and AUDUSD (not in the basket).  USDJPY is still in the grip of stocks so not yet responding to USD moves, although this pair has been overall more bearish the USD than others.  EURUSD is the key driver here but it has been more reluctant to motor.  My expectation for a short term relief rally in USD favour remains.  Once this is done through I think we will see EUR really get going.  My long term expectation is for a large scale A-B-C retrace on USD.

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Since my last post on USD FX we surely got the 1-2 retrace I was looking for and then a sharp drop but what next? 

On EURUSD the retrace made a double bottom, crucially just short of a lower low, and then rallied strongly but is now in retrace back down.  GBPUSD remains bullish, as does AUDUSD but USDCAD has recently gone bullish (in USD favour) and USDJPY has been steadily bullish throughout all the EUR moves so the full weight of all the main Fx pairs is not yet against the USD.  I have been tracking several USD pairs and I feel that another small retrace is on the cards before the USD bearish move really gets going to test and break the weekly chart lower channel line.  Such a small retrace and then lower low on DX would confirm the bearish turn for me.  The retrace would provide a much better entry for a trade than the current levels, patience is needed.  In other words buy the dips on EURUSD; GBPUSD and AUDUSD.  I believe this bearish move on USD will run for a months or two, possible until stocks decide to give it up...  However short term I see USD rallying into next week and there may be some whip saw price action in the move so I will be watching for the retrace end and turn to take trades rather than trading now.  I think precious metals may offer a better opportunity for early next week and possibly we may see a period of stocks bearishness while USD decides on its next big play and with the Fed announcements coming on Wednesday evening I will wait to see how that plays out, I expect rate cuts that will send the USD down eventually, if not exactly when the announcements are made.

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So the Fed is done, 25BPs as per consensus but not exactly what a lot of players were really calling for and no doubt the Tweeter-in-Chief will have something to say about that, if he hasn't already.  Now that it is done my question is where does that leave us?  BoE still to come today but that is only really relevant for GBP for me.

On the charts it looks to me like the retrace I was looking for is done (hit on the Fib 62%), I can't be sure we wont get another rally to the Fib 76/78% level but I might have expected that off the back of the Fed decision and press conference last night.  Several USD FX pairs are at turning points against the USD, or have executed credible turns (from a technical perspective) already, so the deck seems set for the USD bear move now.  I will start to feel more comfortable with my positions when I see the next ST support level broken on DX.  EURUSD is a fairly exact mirror of this chart set up BUT GBPUSD looks like it may have a bearish move left in it before the breakout rally continues.

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Almost inevitably the USD did indeed retest my upper channel line at 9900 and so far has been rejected back down with a short term 1-2 retrace and drop.  Let's see if this is finally the turn, it needs to be as a breakout here signals exactly the opposite (notwithstanding a fakeout).

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2 minutes ago, Mercury said:

Almost inevitably the USD did indeed retest my upper channel line at 9900 and so far has been rejected back down with a short term 1-2 retrace and drop.  Let's see if this is finally the turn, it needs to be as a breakout here signals exactly the opposite (notwithstanding a fakeout).

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yep, this has caught me, thought Trump wanted it lower !  It's gonna hurt some other countries with $ denominated debt & pegs

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Break lower here is an important juncture I feel.  EURUSD set to break to higher highs.  Patterns of late suggest that further stocks declines may accompany this, at least on Dax and FTSE100.  If USDJPY follows suit then on the Nikkei as well...

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Looks like bad news is still good news...  Buy the dips boys are back in, one presumes on the hopes that the PMI data will put pressure on the Fed to take yet more action.  Given this turn is on the Fib 62%, my lead wave 4 turning zone, I have to assume this is a bullish signal and my lead scenario of a final wave up is in play.

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DX posted a turn at the Fib 62% with an A-B-C retrace wave form and is now heading back down to test the short term support.  A break here that coincides with a key trend line break on EURUSD would be a bearish indicator, taken in the context of the strong NMD at the wave 1 (blue) turn that was also at a long term and very strong weekly chart resistance trend line, that is part of a narrowing channel.

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I don't see too many forum users posting on FX, maybe it all got a little dubious over the past year or so, but there looks to be some relief for USD bears now with a decent turn on the weekly chart upper channel line followed up by a short term 1-2 retrace that was turned back on the Fib 62% and has just made a lower low (just).  With EURUSD knocking on the door of a resistance trend line breakout and GBPUSD firmly breaking through its next resistance level the odds seem favourable that this time the USD bearish phase will become manifest.

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Breakout from the short term support (crica 9820) precipitated a strong move on most relevant USD pairs against the dollar, with the notable exception of USDJPY, which remains correlated with stocks (particularly the Nikkei) for now.

I am expecting this move to continue to break the lower channel line and make at least the Fib 38% for a wave A of a retrace that will probably take until the end of the year to complete, but let's let the market decide timing, which we will read as price action.  We could b entering quite a period of FX volatility as this slow grind up for the USD has given way and doubtless there will be some panic reversing as the dollar bears take over.

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Whatever about Brexit, deal or no deal (looks like a deal is on the table but the self serving interests of the MPs still have to be overcome on Saturday!) the overwhelming driver of FX at present is, to me, the USD.  Currently this looks to have turned into a bearish phase, as suggested above and followed up with price action since.

The turn down from the weekly channel line on NMD still holds sway and now the market is at the lower channel line breakout point.  At the risk of attracting another ~ankey comment about breakouts, this is the critical point.  A breakout through this support zone with a close below is critical to the continuation of the bearish move.  GBP pairs will be susceptible to wild moves (probably more risk to the downside if the MPs decide to continue to play silly buggers) so either guaranteed stops or cash in before Friday close would be my approach but other pairs (possible EURUSD might hold some risk too) should not be unduly troubled by a local issue.  AUDUSD and CADUSD are also going great guns (nothing to do with Brexit!).

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Looking like a short relief rally on USD (and associated pairs) that has retested the weekly channel line and failed to break back through.  Might get another test but a strong drop from here is also very much on the cards with similar price action on EURUSD, GBPUSD, USDCAD and AUDUSD.  USDJPY is still keeping pace with stocks, especially the Nikkei so is still a bit buoyant at present.

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A further leg up in the retest and an adjustment to my lower channel line has me projecting a likely test of the Fib 38% level early next week before a resumption of the Bearish phase.  This would also support Gold and Silver rallies (see my Gold/Silver in a long term rally thread).

I see most of the usual USD pairs responding accordingly with EURUSD, GBPUSD and AUDUSD being my preferred vehicles.  Albeit that GBP is a bit more prone to short term reversals on perceived negative Brexit news.  USDCAD is also impacted by Oil and USDJPY by stocks (Nikkei225).  In due course I expect all of them to follow USD weakness.

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I would be wary ahead of the FOMC @dmedinas a further retrace on EURUSD and USD DX is very much possible, maybe even probable.  I would not be surprised to see DX achieve a 50% or more retrace.  It leaves me wondering whether the certainty everyone seems to have around the Fed rate cut is worthy.  I wonder whether Powell is going to disappoint?

On the EURUSD chart I have the following:

  • Likely wave 1 (brown) off the wave 1 (blue) turn and rally to kick off the larger counter trend rally with a 1-5 form and a fakeout at the weekly chart channel line (note it wasn't a fakeout on the weekly chart, just a legitimate spike through and drop back, which means this line is still good (ie unbroken)
  • It is possible we have seen a small 1-2 retrace to wave A (light blue) but I doubt it.  I would expect a deeper retrace and in this case the Fib 62% looks favourite so I currently see this as a larger A-B-C with B possibly done and now we should see a drop off to that Fib 62% test.  This could all happen at light speed around the FOMC, making it hard to trade, although I am minded to think we may see a hardening of the USD ahead of the FOMC, perhaps as jitters of Powell not delivering kick in only for him to come up with the goods and send the USD down and down and down.  Will be an interesting day and rest of the week too I expect.
  • Key to the long term counter trend rally scenario is a break of the 11180 resistance zone.

 

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1 hour ago, Mercury said:

I would be wary ahead of the FOMC @dmedinas a further retrace on EURUSD and USD DX is very much possible, maybe even probable.  I would not be surprised to see DX achieve a 50% or more retrace.  It leaves me wondering whether the certainty everyone seems to have around the Fed rate cut is worthy.  I wonder whether Powell is going to disappoint?

On the EURUSD chart I have the following:

  • Likely wave 1 (brown) off the wave 1 (blue) turn and rally to kick off the larger counter trend rally with a 1-5 form and a fakeout at the weekly chart channel line (note it wasn't a fakeout on the weekly chart, just a legitimate spike through and drop back, which means this line is still good (ie unbroken)
  • It is possible we have seen a small 1-2 retrace to wave A (light blue) but I doubt it.  I would expect a deeper retrace and in this case the Fib 62% looks favourite so I currently see this as a larger A-B-C with B possibly done and now we should see a drop off to that Fib 62% test.  This could all happen at light speed around the FOMC, making it hard to trade, although I am minded to think we may see a hardening of the USD ahead of the FOMC, perhaps as jitters of Powell not delivering kick in only for him to come up with the goods and send the USD down and down and down.  Will be an interesting day and rest of the week too I expect.
  • Key to the long term counter trend rally scenario is a break of the 11180 resistance zone.

 

EURUSD-4-hours_301019.thumb.png.ebcf3f7d71a02eae37d1b6e5de86bbe5.png

Thank you for this. Do all remember, as @Mercury mentioned, that the FOMC rate announcement is tonight at 6pm (UK time). 

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