DXY is now parked at this support so now what?

The Dollar Index is at a level that could be easily followed by a trend continuation ↑ or signal a failed break and subsequent reversal pattern ↓. Both possibilities are possible and highly compelling. I think that the most rewarding trading strategies are trend following ones but this is one setup that a trader has to give a very good thought which camp to follow.

That level is DXY 100 which was also resistance for the past 2 years. Since it was a significant level, traders on either side of the level are probably thinking about these:

  • Supports are meant to stay as support.
  • Supports are meant to be broken.
DXY at previous breakout level

DXY at previous breakout level

 

However I see at least three possibilities:

  1. The November break above 100 is genuine; this current price action is a throwback, retracement which will be followed by trend ↑ continuation. (Support stays as support.)
  2. The November break above is a bull trap; bears are fading the fake break, we are seeing buyer’s remorse and very soon 100 will be broken. (Support is broken.)
  3. Support at 100 region is broken until such a level that signals to most traders that the November break has failed (see point 2). After sucking enough shorts, the false break reverses and re-breaks above 100 for a trend continuation. This is the max bullshit scenario but would not be surprising – I wrote about this kind of setup as early as 2014 – go here >. Personally I am willing to keep my DXY uptrend hat on until it breaks below 98 – just a 2% buffer. (This is the support breaks, un-breaks and then washes and rinses x number of times scenario.)

Tonight is FOMC again don’t be surprised to see something like -> “we may or may not raise rates but you should not doubt our resolve. We will blah blah blah from 4 to 2 to 1″ (but that might happen in December 2017 just like 2016 and 2015).

Happy Spring Festival to everyone.

The following two tabs change content below.
Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
Loading Facebook Comments ...

Leave a Reply