Reflexivity in the USD

I really agree with the idea of going where the volatility is, though, sometimes, the lower variance moves can be correct. (eur/chf for quite a number of years was traded by the most profitable traders at FXCM. too bad their style is why they got super burnt on the decision) If the guy you were watching had just simply looked ahead to the german numbers and planned a trade around that, he could've made/lost only a few pips. I went short eur/usd and long eur/aud, figuring that while the numbers would be good, the recent 100 pip move was an indicator that it was already priced in, so the news release would serve as liquidity to sell without moving price too much and losing profits. Sure enough, eur/usd took a small dive down while the eur/aud took an even smaller dive down. This resulted in only a handful of pips, but the idea is to catch the volatility through neutralizing the euro.

While the dollar has been strengthening, I do think it will correct before the fed raises rates. This will cause commodities to rise and economies that suffer from commodity traps like the australian commodity.

@jplazard Great analysis, really enjoying reading this thread. We're basically on the same line as my expectation for the Dollar are the same. Keep up the good work

GnarlyPips-Good points we see that in Copper and some softs as well. Oil really is not correlated at the moment with dollar and is the hedge fund ploy of the month trying to build positions. I can see the dollar coming down a bit and yesterday's Goods number was not bullish for sure.

Triger-Thank you and I will start to read your stuff as well.



Tosay- For postition traders another day of false breakouts only to come back to ranges. The dollar fell briefly below that 61.8% only to come back into yesterdays US session trading zone. The market is playing daily ranges still and wait for at least a 1H close above/below the eur yesterday's hi low range from US session. Otherwise good luck on scalp.

Eur futures filled that gap from Tuesday's US session close. Depending on the day we could see it settle around this area or if it continues to slide we will definitly be testing 1.09.

This bodes well for the dollar but I need the following to increase position size.

1. I don't go off of one day's direction for a trend move or even one day to confirm a reversal in a currency that has been trading down/up for a week or two. So if tomorrow brings strong volume and a test of Tuesday Hi levels in USD I will be more than happy to enter in buys next week.

2. Strong GDP needs to come out to wash off the stink of terrible durable goods numbers this will see a renewed confidence in a possible hike in summer. CPI was in line and if GDP can get in lockstep the market next week will love USD on the cheap.

3. EUR/USD on a daily needs to close below 1.09 and eur future volumes come in heave on the sell side.



Don't expect much more movement on the downside in EUR as it filled multiple gaps today alone. I would wait for it to trade back up to 1.0961-50 before a short consideration. Or breaks Tuesday's US session close price to confirm a possible test of 1.09

I wrote an in-depth analysis about US Dollar in my blog and I was anticipating this new cycle of broad based dollar strength across the board since beginning of last year. If you wish I can share them here as well as I think it comes in line with your analysis and adds some extra few insights. I'll most likely write another update about the US dollar macro view this weekend.

With this short term plays(from today and yesterday) I think that the 10 year yield may be the culprit here. Yesterday we got a bottom around 1.850 and by the end of the day we managed to get an outside bar and yet the dollar was diverging. But today was another story as the 10y yield found another bid and we almost hit 2.0%, it was clear the dollar was lagging behind and yesterday move(dollar weakness) was a false one as today it was trying to catch up with the yields.

Even yesterday after worse than expected durable goods if you have noticed the dollar actually went up, after an initial and modest spike down (basically was a whipsaw) and I suspect it was because of the 10 year yields as they went straight up after the news release.

Triger I would love to hear your analysis. You were much earlier than I in spotting this trend so I am all ears.

Posted this analysis on 24 January 2014:

"The Case for a Multi-Year USD Bullish Trend.

There are many structural reasons that support a dollar bullish trend in the coming years. The outstanding US Dollar short positions are enormously. And a bearish trend doesn't stops because there will be a mythical big buy position that will reverse the trend.

A bearish trend will reverse when all the sellers who wanted to sell are in the market and there is no one left to sell. The same is the case with a bullish trend which will not reverse because some huge sell will come in the market but because there are no more buyers to lift the market.

So in our case it will not be a bullish dollar trend because some positive reasons. It will be the outstanding US Dollar short positions which are going to create the bullish trend least expected. It will be the biggest squeeze of our lifetime and when this short position will feel the pain of market going against them they will fuel the market new trend as they will be forced to buy back their shorts, which in turns will add more power to the new bullish trend.

The history does repeat itself put it never strike twice in the same place, like chart patterns. Knowing what has happened in the past can give you a guide of what might gonna come. Don't forget that between 1980-1985 the USA had the same problems as of today with its debt and although everyone believed that the US dollar will collapse the dollar was actually on steroid and was rallying (see Figure 1).



The thing that will start US dollar rally will be a rise in interest rates only than the short squeeze rally will begin and will wipe out the short US dollar positions. We are going to have a squeeze on both side of the market like in the 1980-1985 first we are going to go up and only than we can crash and burn. We can't crash and burn from current levels it always must be from the highs.

If you look around the world you will see that everyone is imploding and the trust in governments isdeclining at alarming speed and capital flows is shifting from public to private that's one of the reasons why US stock market are still rallying. And this will be the trigger point fro the raise in interest rates --> dollar rallying. The only currency that can absorb huge quantity of money remains the US dollar, it has hugeliquidity. The euro can't replace the dollar because of the structural problems and its failure to create a single debt.Can you see the symmetry in Figure 1 the trigger point for the new US dollar bull trend will be when we are going to break the black TL like it was the case in 1998.

This US dollar bullish trend can't happen in isolation from the rest of the market and particularly from the Bond market, we must first see the US Bonds going down and yields going up that will be the catalyst for the next broad based Dollar bull move and that will only happen after 2014, as previously I said timing is key and my expectation is that 2015 will be the trigger point as we will hit two cycles of PI from the 2009 US share market bottom: PI=3.14 years ---> from 2009 adding 2 cycles of PI (3.14*2=6.28)--->2015 that's how I get this number and that's why is a major turning point.

So,the next question is how you can profit from this move and what pair you should chose to trade. Although I do believe USD/JPY can be a strong candidate due to the strong divergence between FED and BOJ monetary policy, but from a risk to reward ratio I think that you'll be better off by trading EUR/USD.

Best Regards"

I already stared working on my update analysis and what to expect next on US dollar front, but I'll posted it next week after it's completely done.

Great call on bonds and the dollar chart. This is exactly my thesis on a fundamental aspect when the dollar went crazy under Reagan. We had a loose fiscal policy(similar to today) and a tightening monetary policy (fed starting to turn this into reality) where the dollar and markets were booming.

You get it I see on a fundamental aspect. Some people who claim the stong dollar is bad for the US economy fail to realize there is a long shifting period before it shows up in the balance sheets of capital goods and trad able goods sector. Right now neither of those sectors are in a recession.

Are you a reader of Soros? He has a great chapter in The Alchemy of Finance called Reagan's Imperial Circle that essentially outlines the dollar spike higher then collapse when he was leaving office. I too believe we are in this same mode. You analysis is spot on and are you also aposition trader riding this major cycle like myself or do you pick certain spots to go flat then long again on futures or short EUR/USD?

I'm a huge fun of George Soros and as you may guess I have already read his book. Usually when I like a book I read it more than once because it helps me cement the ideas and see the writings from different angle. So far I've only read it once, and I'm planning to read it again after reading your analysis.

I'm a position and a swing trader and don't try to be in and out of the market every day, but what I try is to catch the big waves. However when opportunity arise I do take short term plays as well.

OMG! I think next week I am going to start intra day trading EUR futures again while waiting for dollar to break higher. As a position trader I did not make one trade this week on dollar as I only like to focus on one instrument and understand it fully. But based on the EUR i don't mind playing for 10-20 ticks here and there when a trade is so obvious. It moved exactly to the point I thought it would before selling off again SMH.
One EUR contract at $12.50 a tick getting short at 1.0955 down to 1.0925 would of been 30 ticks or $375.

That is great to hear. I am excited to follow you as well to see possible entry spots you would consider. Also if you have all his books great, if not I have all his books in PDF form if you or anyone wants them.

Tuesday's close on DXY has been broken which is a great turnaround from last nights European session to today. If it can close on an hourly above Tuesday's close that would be great.

Eur futures now touched 1.0901 fairly quickly after breaking yesterdays close price. This could present a new channel going into Europe trade before tomorrow's US session.

3 parameters for me to increase long in US

1. USD needs to trade at/above Tuesday's US session high price which it looks to be doing
2. GDP numbers need to be strong and PA needs to react along with it, a short burst and come back to range would suck
3. EUR needs to trade below 1.09 and act as resistance.
Tomorrow I might be able to finally click my mouse on the Buy on DXY.

I spoke about this in the EUR/USD thread yesterday I believe when the subject was talking about FXTyrant and criticisms against traders and the topic became what traders are great to what traders are just placing bets hoping for the best. Also I received a PM yesterday about my strategy and as I mentioned before I am a position trader who is the most long term you will find lol just check out the AUD bear thread for this confirmation. However, before I became a position trader like everyone else people needed to build there roll so I started out as a swing trader.

I mentioned yesterday the two biggest things I believe losing traders do (Gnarlypips made a great counter point though regards USD/CHF) which was
* Trading at illiquid times where the market is crap city and you're waiting for several hours before the market gets out of a narrow zone. Usually you either second guess yourself about the market and close out early or you have to wait and wait before London or US confirms your bias on a particular trade.

* Trading at the most ridiculous levels where in a consolidation range you decide to buy/sell near the middle without any know how. This morning when I mentioned if you wanted to sell EUR wait until one of two things happens 1st wait until the price trades back up to 1.0961-50 level for a possible move lower. This was not an arbitrary number but was right below yesterday's US session low and if it banged up against it and failed you could feel more confident in getting short to catch the next leg lower. Or I mentioned you can wait until it breaks yesterday's US session close and get short but wait for an hourly confirmation as false breakdowns happen constantly in all markets. Now this is an intraday example but my point is this, those who have like 25-30 indicators and drawings and all this unnecessary stuff on their scenes only bogs down true PA and can make you get into trades that are not great setups.

I remember when I first started trading I had the following indicators,
MACD, Oscillators, 200exp MA, 50exp MA, 9exp MA, 100SMA, RSI, and over a 100 drawings from trendlines that were not even relevant but look pretty on my screens. Today I have only 9sma, RSI 80/20, and just program yesterdays and the day's before Open-Hi-Low-Close, and a few drawings that point out gaps or key S/R levels, and fib retracements some are prop.

The traders who are successful that I have met who use 20+ indicators usually alter them or program them in with alterations with their own prop indicators, I rarely see very many successful traders who use all these indicators that just come stock with the platform. New traders need to understand that the brokers love to give you this free piece of software that makes all these noises and has all these bells and whistles because it will mimic a slot machine. They know you will be allured by the pretty colors and 'tools' which will make you constantly churn your account and lose on trades because you use all this fancy (unnecessary) stuff.

My advice to new traders who are trying to build there accounts is:
1) Clear your charts of all the SHIT
2) Make clear drawings like a major trend on a daily or even Weekly chart, or if you're a shorter term trader just have major consolidation zones as your drawings.
3) add a Fib retracement or two from major swing hi or lows as many traders watch these levels.
4)Add RSI so that you can understand and view overbought/oversold markets. This is just one tool to find reversals but you also have to have confirmation in other areas notably the charts needs break previous support/resistance zones and close above them on larger time frames like 1Hr 4Hr
5)Moving averages are fine but don't be like some here who think having over 10+ moving averages like those ribbon averages will make you look cooler one or two well known MA's is all you need to help with PA.

6) This is very important: If your software allows you to program yesterday's Open Hi Low Close on US session or London session or whatever session fits your schedule do it. I say this because if you look at the dollar today this is a perfect example in US session where it was bouncing off the lows of yesterdays US zone before shooting higher, it then briefly crossed above yesterday's US high, then it came back down to smack right on yesterday's close price before continuing higher. If you had this in your charts this could of been a great indicator to know when to go short or long EUR/USD or other pairs that are highly inversely correlated to the dollar. (See example below) Now if your software does not allow this all you need to do is create a simple excel sheet that shows these pivot levels. And as a great trader 10min before the market session you trade should review thses levels, plot them on your charts and then wait for confirmation to go long or short.

Here is another example when I mention find high probability setups. I am a dollar bull as everyone knows but if you look at the chart you will notice dollar has traded at the highs of the WEEK but has failed to close above Monday's hi price. If I were a a bear I could say to myself, 'this is a channel on a week move, I can go short at these highs and have a VERY TIGHT STOP of say 3-5 ticks which in one dollar future contract is $30-$50 loss. when it fails and moves down I move the STOP LOSS to BE+1 to cover commission going in/out plus at min I capture something. If the trade does not work out and it continues higher you find the next major gap price, OpenHiLowClose,and you wait..and..wait for the next major setup.

Scalpers need to scalp and I salute those who can do it consistently over a 5 years but for those who can't dedicate all day screen time and possibly have work swing trading is your best bet.

I'd figure I would stay up until tommorows close to get this trade down tomorrow going long USD if it presents itself in London.

My bias for the Dollar is it could come down a bit here but not to cross below 97.229 which is Tues hi price. That is where I will be looking to buy

3 scenarios present themselves in EUR/USD at the moment which I am watching with great interest to find a nice long in DXY

1) Italian retail sales blowout expectations seeing the EUR rise to the 61.8% level in the chart below before failing going into US open to start shorting

2) PA is neutral and nothing really moves going into US open which would really be a great sign for a continuation to complete a full EUR/USD weekly move to Monday's low price of 1.0780(fut)

3) Numbers are absolutely horrible and eur breaks the gap fill level at 1.0868(fut) to trade lower going into US session.

My money is on EUR going up to 61.8 1.0942-30area(fut) to fail and then will be a wonderful short opp which I would take by going long USD going into US session. Otherwise if nothing happens I will just have to wait for US GDP.


Side note: I am a bit concerned what Yellen will say as she terrible in speaking when it comes to putting her foot in said mouth about interest rates which could spook USD bulls again. If the dollar falls lower and closes on H4 going into US session it won't bode well.

Otherwise be patient....If you miss the move get some ZZ's and the market will be there for you in the US.

jplazard great thread!! Will be following with interest. Will read through that PDF this weekend....

Interesting to note that overnight we had a spike down in EUR only for it to open US session exactly where we were yesterday's close. USD actually made a test of the downward trend since it topped out.

All my parameters were not met

1. USD needs to trade at/above Tuesday's US session high price which it looks to be doing (WE WILL BE testing soon)
2. GDP numbers need to be strong and PA needs to react along with it, a short burst and come back to range would suck (Not met)
3. EUR needs to trade below 1.09 and act as resistance (IN DEVELOPMENT)


I will see how PA reacts to the GDP numbers but I suspect Eur will be at the level where I mentioned in Asia trade at 1.0930-42(fut) and it I will look for PA long set up in going into weekend USD. Still sitting on my hands until PA tells me when to press buy. We are trading exactly where we were since yesterday's US session close so PA will be important for direction today given the false breakout in USD in London session.

Tessia thank you and it's nice to meet you.

Don't feel compelled to go long EUR/USD or Long USD right now as they are both essentially unchanged if you go from US session-to-US session close. If you look at the US session chart only for EUR fut it's still heavy but anything can happen in the next hour or two.
We need a clean 1h close below 1.0860 for EUR to really fall into next week, but for right now that gap fill is still support at the moment.