Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Semiconductor Sector – Watch the Early Bird in 2019 - 21st Jan 19
From ASEAN Economic Development to Militarization - 21st Jan 19
Will China Surprise The Us Stock Market? - 21st Jan 19
Tips to Keep Your Finances Healthy in 2019 and Beyond - 21st Jan 19
Tips for Writing Assignment in Hurry - 21st Jan 19
UK House Prices, Immigration, and Population Growth Mega Trend Forecast - 21st Jan 19
REMAIN Parliament to Subvert BrExit with Peoples Vote FIXED 2nd EU Referendum - 21st Jan 19
Pay Attention To The Russell Stocks Index and Financial Sectors - 20th Jan 19
Hyperinflation - Zimbabwe's Monetary Death Spiral - 20th Jan 19
Stock Market Counter-trend Extends - 20th Jan 19
The News About Fake News Is Fake - 20th Jan 19
Stock Market Bull Trap? January 22 Top Likely - 19th Jan 19
After the Crash, the Stock Market Made a V-shaped Recovery. What’s Next - 19th Jan 19
David Morgan: Expect Stagflation and Silver Outperformance in 2019 - 19th Jan 19
Why Brampton Manor Academy State School 41 Oxbridge Offers is Nothing to Celebrate! - 19th Jan 19
REMAIN Parliament Prepares to Subvert BrExit with Peoples Vote FIXED 2nd EU Referendum - 19th Jan 19
Gold Surges on Stock Selloff - 18th Jan 19
Crude Oil Price Will Find Strong Resistance Between $52~55 - 18th Jan 19
Stock Market’s Medium Term is No Longer Bullish. It is Now Mixed - 18th Jan 19
SPX and Gold; Pivotal Points at Hand - 18th Jan 19
Fable Media Launches New GoWin Online Casino Affiliate Site in UK - 18th Jan 19
The End of Apple! - 18th Jan 19
Debt, Division, Dysfunction, and the March to National Bankruptcy - 18th Jan 19
Creating the Best Office Space - 18th Jan 19
S&P 500 at Resistance Level, Downward Correction Ahead? - 17th Jan 19
Mauldin: My 2019 Economic Outlook - 17th Jan 19
Macro Could Weaken After US Government Shutdown. What This Means for Stocks - 17th Jan 19
US Stock Market Indexes Reaches Fibonacci Target Zone – Where to Next? - 17th Jan 19
How 2018 Was For The UK Casino Industry - 17th Jan 19
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19

Market Oracle FREE Newsletter

UK House Prices, Immigration, and Population Growth Trend Forecast

The USD Index’s Outlook

Currencies / US Dollar May 24, 2018 - 03:57 PM GMT

By: Nadia_Simmons

Currencies

While we regularly cover the individual currency pairs, in today’s alert, we’ll focus on their common denominator – the USD Index. The reason is that whatever happens to it, will have profound implications on what happens in the rest of the forex world. And it seems that quite a lot is going to happen, and it’s not going to be intuitive.

As one can see, there is a general tendency for a given market to move up until it is very overbought and then to correct or decline significantly. At the least - visibly and at the most - extremely and another way of describing the latter is to say that the market is going to become very oversold.


But this may not be the case in the USD Index for some time. Let’s take a closer look at the short-term chart:

The USDX has been oversold for almost a month and yet no meaningful corrective downswing took place. How could this be in the light of the above-mentioned rule? Because of a much more important rule – that the history tends to repeat itself to a considerable extent.

Yes, there are two major resistance levels relatively close to the current value of the index, but they don’t have to generate a meaningful downswing. The lower of the targets is 94 and the higher is 95. The former is provided by the December 2017 top and the latter is based on the October / November top. The 94 level seems more important as it is strengthened by the August and the early October tops and the 38.2% Fibonacci retracement level.

The USD Index just moved to the lower of the above-mentioned targets and one might have expected a corrective downswing. And it happened. Some may say that the corrective downswing was way too small to correct anything, but the king doesn’t agree. It is said that the context is king, and this phrase perfectly reflects what one needs to take into account right now.

As we discussed earlier, the history tends to repeat itself, and the way the USD Index rallied this and last month resembles only one situation from the recent past (and two others from the more distant past). The key one is the 2014 – 2015 rally and the two remaining ones are the 2008 and the 2010 rally.

They all have one thing in common – there were only very brief corrections along the way and the rally took USDX about 15-20 index points higher. So far the USDX is only 6 index points higher, so it seems that most of the rally is still ahead.

Moreover, if the current rally in the USDX is to continue to be similar to the 2014 one (and this seems likely in our view), then we shouldn’t expect a major weakness anytime soon.

Surely, there will be some local pullbacks, but most likely nothing that’s particularly visible from the long-term point of view.

Moreover, please note that the RSI is not yet overbought from the long-term point of view and back in 2014 and 2015 the rally didn’t end even when it was extremely overbought.

So, should we really expect a major decline in the USD Index shortly? Not really. The short-term USD chart includes a rising dashed support line that’s based on the most recent local bottoms. It was just reached, so perhaps the decline that was likely to be seen based on the 94 level, has already taken place.

The above is just the technical justification and let’s keep in mind Fed’s hawkish comments and overall tendency to raise interest rates in the US, while they are not being raised in most of other developed economies. This is also a bullish factor for the value of the US currency in the medium term.

The above likely makes you ask one specific question: if it’s so clear that the USD Index is going to move higher then why did we cash our profits from EUR/USD a few days ago and why are we not keeping any trading positions at this time? The reason is that while it’s more likely than not that the USDX is going to move higher, it’s not likely enough for us to open a position. Your trading success is important to us and we don’t want to make anyone open positions if a given outlook is not confirmed by several techniques at the same time. We are looking for confirmations and once we get them, we’ll know that the risk associated with opening the position is smaller. Naturally, our subscribers will be notified when that happens.

Summing up, the outlook for the USD Index is bullish for the medium term, but not yet bullish enough for the short term to justify opening a speculative long position in currency pairs that move together with the index and a speculative short position in currency pairs that move opposite to the index.

If you enjoyed the above analysis and would like to receive free follow-ups, we encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Oil Trading Alerts as well as Gold & Silver Trading Alerts. Sign up now.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski
Founder, Editor-in-chief

Sunshine Profits: Gold & Silver, Forex, Bitcoin, Crude Oil & Stocks
Stay updated: sign up for our free mailing list today

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons’ reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules