In our opinion the following forex trading positions are justified - summary:
The USD is a part of all of the currency pairs that we cover, so what happens in the USD Index has profound implications. In today’s issue we’ll discuss the short- and long-term implications for this all-important index.
Let’s take a look at the charts (charts courtesy of http://stockcharts.com):
The USD Index rallied substantially on Friday, which is generally a bearish development, but let’s not forget that a breakout needs to be confirmed before it can be viewed as something major. In case of the breakout above the rising blue resistance line, we’ll need to see additional 1-2 daily closes above 95.6 or so before we view the breakout as truly confirmed. Ideally, USD should close above the 50-day moving average as well (the blue slope), which is currently at 96.78.
From the short-term point of view, the USD Index has been moving back and forth for weeks. From the medium term point of view, we can say the same, but in terms of months. This suggests that the USD Index is preparing for something. The above short-term chart can’t really say what is it, but the long-term chart can.
Why?
One can’t discuss the existence of a medium-term or long-term bull market by only looking at short-term charts. That’s like driving and after making 3 left turns assuming that the correct road is to keep turning left, instead of focusing on what the navigation system or a map suggest. You can drive seeing only a little before you (you can trade in the very short term only), but you can’t say based on that what the entire road will look like (you can’t say what the big picture is by looking only at the short-term charts).
The big trend for the USD Index is clearly up. It was not evident before the 2014-2015 rally, but since USD was able to easily break through the 2008, 2009 and 2010 highs, it is clear now.
Now, the 2014-2015 rally was huge and sharp and its natural to see a consolidation after such a move before the uptrend resumes. The USD Index has been consolidating for about 1.5 years and it appears that it’s finally ready to move higher. In terms of price, USD corrected to the first (38.2%) Fibonacci retracement level twice, which is normal and not something that would invalidate the bullish outlook.
Once the USD Index breaks the 100 barrier and the 2015 high, the rally should accelerate, just like the decline between 2002 and 2003 accelerated.
So, overall, the USD Index is in a long-term uptrend, and there are some short-term indications that it will rally shortly, but before seeing some additional bullish confirmations, it seems that betting on USD’s rally is too risky. We expect this this to change relatively soon and that trading opportunities will emerge and we’ll keep you – our subscribers – updated.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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