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.

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