There is lots of talk on the business channels today about how bad the US$ is performing this week … the business channel pundits are great at looking in the rear-view mirror to tell us what has just happened – that doesn’t really help traders make money, however. I prefer to look ahead and anticipate what may happen next.
I did that back on March 19, 2017, when I wrote a post about my outlook on the price pattern on the US$ on my old blog site and posted it to StockTwitts and Twitter …
Obviously, the link to my old blog site no longer works, but my thesis back earlier this year was that we had likely made a top in the US$ strength, right when everyone was wringing their hands about how strong the US$ was and how that was going to hurt the economy going forward. Most traders and ALL tv-pundits/economists look at the past price movements of a stock/commodity etc and extrapolating them in a straight line forward. They don’t bother to consider the wave structure of price movement.
Here is the updated monthly chart for the trade-weighted US$ …
US Trade-Weighted Dollar – Monthly Chart
You can see from the above chart that I am thinking that we are near the end to the second wave of a likely 3-wave price structure. Once we do find support for the 2nd wave, we should get a multi-month bounce in the US$ up into the minor SLOT resistance zone, which will then set up the final 3rd push down into the bigger level of support which I think will end up being around the $84-$88 level/zone.
US Trade-Weighted Dollar – Weekly Chart
Note how we are making a large range candle this week that makes me think about a possible exhaustion-style move. That would mean that the end to the bigger wave 2 move lower is probably close at hand.
Note also that we are currently painting dark blue extreme trend strength warning candles … history tells us that this extreme condition cannot last forever and that we should be looking for a possible end to the current trend/wave push.
There have been no pink divergence dots, however, so we may need to see a couple of smaller insider-candle weeks here coming up shortly to set up the next bounce higher. I do think, however, that the push to lower prices here on the weekly has reached near the lowest levels that we will end up seeing for wave 2.
US Trade-Weighted Dollar – Daily Chart
The daily chart will give us the first clues that the weekly push lower is complete … the daily ATR is in a position of resistance currently and is at $93.30. That level needs to be taken out to flip the daily chart to a position of ATR support – that would be the first real concrete evidence that the weekly bounce higher has started.
Note that the daily chart has posted dark blue extreme trend strength warning candles with pink divergence dots … often that will mark the end to a trend, but when a bigger time frame chart is not finished pushing into its logical support/resistance level, you will get one more little push to new minor lows/highs. I think that is exactly what has happened here on the US$ and this daily chart. This price action on the daily and the color of the candles gives me more belief that we are near a wave-2 low on the US$ weekly chart.
US Trade-Weighted Dollar – 195 Minute Chart
All smaller-time frame charts show the likely condition of the next bigger time frame … that daily chart likely shows the end condition of the weekly, and the above 195-minute chart is likely going to help us find the end of the daily chart’s push lower.
You can see that the 1.272x extension target for the 195-min chart is at 90.94, which is just below where price is currently. Does price have to get “exactly” to that 1.272x level … in a word, “no”. Traders should view all extension targets as a zone and not a definitive price that will be hit to the penny every wave,
Traders need to take into consideration other factors like the color of the candles etc. …. here we can see that we have both light blue candles and dark blue candles with pink divergence dots. To me, that means we are VERY close to where we should expect a bounce in the US$.
So what should we be looking to do as far as a trade here? I like to trade the Euro and the Cdn$ in the futures markets, but I will also look to use options on the US$ ETF (UUP) when I am at a more important support/resistance level.
US Trade-Weighted Dollar ETF (UUP) – Daily Chart
The above daily chart shows that I think we could see a bounce out of wave 2 support that sees the UUP ETF going as high as $25.50ish.
US Trade-Weighted Dollar ETF (UUP )- 195 Minute Chart
Again, the 195-minute chart should set-up the signal that the daily chart is beginning its trend move higher … I see a small/minor 3 wave price move here in this final push lower on the 195-min chart. We are in the final push lower in that wave pattern and the 1.272x target zone is at around $23.60. As I write this, the UUP ETF is at $23.72 down $0.04 for the day.
I think that this is close enough to a likely end target for the move lower to start a position to play for a move higher in the US$.
I started a position in the UUP this morning using the October monthly options … I sold 10 contracts in a bull put spread using the $25/$23 strike prices for a $1.22 credit ($1,220 max profit and $780 max loss). I then bought 75 $24 calls for $0.15 or $1,125 in total. If the price gets up into my SLOT resistance zone around that $25.00 – $25.50 level, this trade will have cost me nothing and actually produce a nice gain of about $7.5k – $11.25k. I like setting up trend reversal trades like this.
Bottom Line – pundits are wringing their hands and extrapolating the US$ collapsing here into the abyss. I have a little different view of things and I am actually expecting a little bit of a bounce starting within the next week or so.
Cheers … Leaf_West
P.s. … I will try and post in my Education Tab this weekend, some of my educational PDFs that go into more detail the color coding system that my charting software utilizes. Cheers