My US Dollar (DXY) Trading Plan in the Coming Weeks

09. April 2015 · Write a comment · Categories: Uncategorized · Tags: , ,

I have always learned (in trading) to “plan your work, then work your plan.” If you listen to my daily webinars, I spend 3.5 hours a day talking strategy on how I would like things to shape up in the markets before I take action. Does that mean that all my plans come to fruition? No, not at all. However, if I have some sort of template or plan of what I am trying to do, it helps me forge my intraday and swing trading strategies in the currency market.

Today, I talked about my trading plan the next couple weeks for the USD index. I am hoping the market plays out this way and helps guide me in my FX trades. Funny thing is I don’t even trade the DXY. I trade FX crosses like the EUR/USD, AUD/USD, USD/JPY, etc. But understanding the basic trajectory of the USD index can help shape my decisions in the crosses. By the way, the USD/JPY makes up about 13.6% of the USD index, however never is factored into my equation when trading USD pairs since the USD/JPY tends to be more sensitive to yields and risk trends than the USD index.

The DXY index broke higher following the FOMC minutes yesterday. This created a double bottom in the USD index, broke a “bearish wedge” (should have broke lower but instead broke higher) and looks to be on the way to testing range highs. However, the double bottom has a projected target above the recent trend highs. If we break higher, I am looking for a target of about 101.50 which is a 127% extension of the recent range:

4-9-15DXY1

If this rally does happen, it is likely to be viewed as a squeeze as there have been so many traders trying to call a “top” in the USD as of late. That type of behavior is very common when you see very explosive and strong trend like the one in the USD index in recent months. Frankly (I have to admit) I agree with that thesis, however have had a difficult time trading it lately. So, I have been buying the USD (mostly) on dips as of late instead of trying to short the USD.

If the DXY does move higher as planned and makes a brief new high, the monthly 61.8 retracement level is at about 102.00. I have felt the last couple weeks that the 61.8% Fibonacci level at 102.00 has been “unfinished business” for the USD bulls anyway.

4-9-15DXY2

If we hit the 101.50-102.00 I would be looking for a longer term reversal (or bigger consolidation) of the US Dollar Index.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

 

 

 

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EDGE Chart of the Day – 1/5/15 – USD/SEK

05. January 2015 · Write a comment · Categories: EDGE Chart of the Day · Tags: , ,

The USD/SEK is approaching critical resistance on the weekly chart as we approach the 8.0000 level. Like the EUR/USD as it approaches the 1.1700 level (critical support of 1.1639 Nov 2005 lows) a lot of these levels will hold or break dependent on the actions of the ECB in the coming weeks.

The USD/SEK 8.000 level (as seen below) has a confluence of the 61.8% Fibonacci retracement level from 2008 highs to 2011 lows. Also a 161.8% Fibonacci extension from 2012 highs to 2013 lows. This confluence (approx 8.0000) will be a major congestion level until after the ECB meeting January 22nd. I suspect a break or rejection of this level will take place following the ECB meeting.The ECB will influence the EUR/USD exchange rate which tends to be an inverse relationship to the USD/SEK.

1-5-15USDSEK

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I have been long the USD/SEK exchange rate for the last several weeks.

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US Dollar at a Major Resistance

17. September 2014 · Write a comment · Categories: Uncategorized · Tags: , ,

Technically the USD looks very overbought. I know it. You know it. Hell, your grandmother probably knows it (by suggesting you buy it). But the question you have to ask yourself, “should you short it?”

Most traders are loured in by the tendencies of being the one guy or gal who “calls the top” or can yell from the rooftops “I nailed it!” I know this since I have been there, done that. I (like many others) have tried to fade the strong US equity markets one too many times in the last 5 years and have come up empty handed (or pocketed…however you want to look at it!).

The USD in this situation is no different, in my opinion. Technically, we are nudged up against a trend line that has confined us for the last 10 years! See weekly chart below:

9-17-14USD1

But before you short the USD, take into account a few things technically:

Daily chart we just broke out of a bull flag (continuation pattern and now target 86.00:

9-17-14DX2

And, if you take a “longer term look of the weekly chart, RSI wise, the RSI has seen more overbought conditions in the past:

9-17-14USD2

When you take a step back and ask “why” the USD is moving against some of the major currencies counter parts, the answer now is a little clearer than it was a couple months back. The single most powerful driver in the Forex markets are rates (and rate expectations). Today, the FOMC is talking about “normalizing” rates and ending many years of quantitative easing, where the ECB and BOJ are adding more liquidity to the markets. If you take a look at the BOE and what is happening in Scotland this week, the BOE may end up with an ultra loose monetary policy for quite some time as well if Scotland decides to go independent, which will only fuel more fire to the USD rally unfolding before your eyes. Bottom line, rate expectation for the US are moving up. In a ZIRP world, the other 3 central banks are…well….moving sideways at or below ZIRP.

Can you make money fading the USD’s strength? Yes you can, but be very careful, this move is strong may end up being more powerful than you can imagine. Keep your stops tight, manage your risk appropriately, so you can trade another day. If this trend really explodes to the upside, the last thing you will want is to be on the other side of the USD when (or if) it moves a quick 10 cents on the USD index.

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I am long the USD and have been long the USD against a basket of currencies for weeks.

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EDGE Chart of the Day 5-23-14 USD/SEK

23. May 2014 · Write a comment · Categories: EDGE Chart of the Day · Tags: ,

5-23-14USDSEK

 

USD/SEK bull flag formation, targets about 6.7500. Also, breakout of strong downtrend line and bounce off 200SMA on the daily chart.

Blake Morrow

Chief Currency Strategist, Wizetrade

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Observation on the USD and Fed Funds Rates

08. April 2014 · Write a comment · Categories: Uncategorized · Tags: , , ,

Last week, I was having a conversation with one of my friends, @Vulgi about a research piece that was written by Nordea bank. The research showed how historically the USD would not rally just as the Fed would raise rates. I took it upon myself to look and see if that was the case or not.

As you can see in this chart, since 1970 this is the EFFR (Effective Fed Funds Rate) and the USD overlayed:

4-8-14EFFRUSD

The vertical lines are  when we started a rate hike cycle (Red) and  when the USD rally followed (Green). What I noticed is that the USD (in most instances) rallied quite some time after the Fed actually hiked rates.

The “Taper is not tightening” TV expert monologue may actually be quite true in today’s market. And frankly, even when the Fed (sometime in 2015) decides to hike rates, it may also be true that the USD may not rally immediately following any monetary policy tightening from the FOMC.

One function of the USD that is true at the moment, and has been for quite some time, is that the USD is the reserve currency of choice. Which means, during prolonged periods of risk aversion the USD tends to be the beneficiary.

4-8-14EffectiveFedFundsRateUSDSPX

The USD does have a unique role as the reserve currency of choice for most (for now until there is a better alternative). What you will notice about the chart above, when the stock market moves lower, the USD is usually already in demand, especially in 2000 and 2008. If the Stock market does turn lower in the next couple of months, the USD could benefit from risk aversion flows, and if the FOMC is still hell bent on raising rates at that point, the USD rally could continue.

So, before you get too comfortable with shorting the USD, do take note we are in the “apex” of a long term wedge which make it increasingly difficult to trade.

4-8-14DXY

Also, keep in mind the SPX may be at the upper end, or top, of an up sloping channel of the last 5 years.

4-8-14ES

One last thought. Steve “Sully” S also said “this ain’t your Daddy’s FOMC” which is very true. This isn’t your Daddy’s market or monetary policy he has ever seen.

Excuse the website for now, it is a work in progress.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

Disclaimer: I am pretty sure within the next 72 hours I will buy and sell the USD in some way shape or form.

 

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