The DollarDollar Forecast; The Bulls Are Back In Charge

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The Dollar/Dollar Forecast; The Bulls Are Back In Charge

Double Bottom Is Confirmed, A Retest Of Highs Is At Hand

The FOMC have done their work. The committed said it won’t raise or lower rates without a significant change in inflation and that is underpinning dollar strength. The Dollar Index moved higher over the last week and didn’t just confirm the Double Bottom I’ve been watching, it blew right past the baseline and is on track to keep moving higher. In every case, the indicators I commonly follow are bullish. Price action is forming a series of White Soldiers, not really strong ones but solid nonetheless. The MACD momentum shows market strength is at a four-month high and getting stronger, as does the stochastic. The only worry is that stochastic is already inside “overbought” territory so there some risk resistance will cap gains.

The first target for resistance is near $98.50. This level may provide strong resistance to price movement but I don’t think strong enough to cap gains for long. Next week we are looking for reports on CPI and PPI, along with retail sales. Positive surprises there will tilt the balance of sentiment toward rising FOMC rates and that will aid the bulls advance. A break above $98.50 will likely move up to $99.25 and then $99.70.

The Canadian Dollar is losing ground to its southern neighbor. The USD/CAD is moving higher and aided in today’s action by weak labor from Canada. Today’s move breaks above another point of resistance and opens the door to a much larger advance. The next resistance target is close to 1.3350, a gain of 118 pips. The indicators are both bullish and on the rise, neither are in overbought territory just yet. This move has room to run.

EUR/USD Trading for August 8, 2020 (2/3 ITM)

I started watching the EUR/USD around 2AM EST, and immediately the thing that popped out was the pivot level working as a robust price level. During a 25-minute stretch leading into the open of the European session, the pivot was tested but held pretty well along the line. The retracement back down went about 4-5 pips, which doesn’t seem like much, but during the 2AM hour on a summer Friday, that’s about as much movement as you might typically obtain.

1. Given that the pivot had held well earlier, I was willing to get in at the pivot if it reached back up there again. It did on the 2:15 candle, went above by a pip, and closed below the level. So on the re-touch of pivot on the 2:20 candle, I entered a put option.

As you can see from the chart image, this trade lost by about ten pips. If I can learn anything from this, there are two things that come to mind:

A. Support and resistance levels created from previous price history during non-standard trading hours tend to be less useful than those created in more volatile time periods. They simply don’t hold as well. Indeed, I did have the pivot level to base this trade on, but I almost surely would have looked for further confirmation that the pivot level could be a prospective turning point. But I already had that from the congestion at the pivot at the 1AM hour, which is a down period.

B. Trading near the open of a new continental trading session tends to bring in a higher influx of volume. So a price level that may have held during the Asian session may not hold as well as it might upon the open of the European session.

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Despite the profound non-winning result, I wouldn’t necessarily call it a “bad trade.” Nonetheless, it’s definitely something I can learn from based on the two talking points above. But for anyone who has been trading binaries long enough will have experienced the phenomenon of taking a trade, only to have it fly against you from the outset and never turn back.

2. The uptrend that coincided with my entry into the losing pivot trade lasted over thirty minutes. In the process, the market covered over 40 pips in the upward direction and broke resistance 1. Just before 3AM EST, the market began settling down again. Eventually by the 3:05 candle a conspicuous level of resistance was created from the recent price movement at roughly 1.33961 (the price that seemed to best match up with the top of the candle bodies).

By this 3:05 candle, two consecutive red, bearish candles had formed lending validity to the notion that the market could be heading for a retracement back down. So on the touch of 1.33961 on the 3:10, I felt that I had enough evidence to support the possibility of the market returning back down a bit.

This trade won by about two pips and it eventually did return down below resistance 1.

3. It would take over four hours before this next set-up would occur. The resistance 1 (1.33885) level was in play here. There had been some sensitivity shown to it around 3:30 and 5:15.

When the market came down to reach resistance 1 again on the 7:20 candle there was a nice rejection. On the 7:25, price moved about six pips above 1.33885, demonstrating decent buying movement above resistance 1. When price came down to touch 1.33885 on the 7:30 candle, I entered a call option, expecting the previous price congestion, the reasonably strong current buying willingness, and resistance 1 pivot point itself to act as factors to evidence this particular trade set-up.

This trade initially went against me by 2-3 pips. But I had a full 15+-minute expiry in play, and with enough market volatility this trade eventually had the means to turn around. It was up by eight pips at one point on the closing candle before settling in at a five-pip winning margin.

So after a not-so-favorable outcome on the first trade, I was able to follow up with two nice winning trades, which always offers a good way to end the week.

USDJPY 20 Days After the Forecast

USDJPY fell to as low as 105.54 on May 3rd and just when the picture was beginning to look more and more negative, the bulls decided they have had enough and came back to lift the pair to 110.58 so far. This 500-pip recovery must be a painful wound for the bears, which would have been better off staying aside, since there were plenty of warning signs that a reversal is near. The daily chart of USDJPY, for example, provided our premium clients with at least two, when we sent it to them on May 2nd.

First, when we applied the Elliott Wave Principle to the above-shown chart, the result suggested the entire decline from the top at 125.85 is a (W)-(X)-(Y) double zig-zag correction, which appeared to be approaching to its termination point. Once the entire corrective pattern was over, a reversal could be expected.
Second, as if to confirm the bullish expectations, the relative strength index indicator was showing a strong bullish divergence between the lows of waves A and C of (Y).
Turns out the chart above gave traders enough signs to warn them that the trend in USDJPY is about to change its direction very soon.

But in order to be able to spot these signs, one has to have the proper perspective. The Wave principle’s perspective. This method has numerous benefits, but among the most valuable ones is the ability to help traders predict trend reversals. Because no trend lasts forever. Relying on the old one, while it has already ended could be a costly mistake. Learn to avoid it with Elliott Wave analysis.

What to expect from now on? What is the bigger picture saying? Is USDJPY going to continue even higher or the resistance near 110.60 would turn out to be too strong for the bulls to breach? Prepare yourself for whatever is coming. Order your on demand Elliott Wave analysis now or pre-order the one due out on Monday at our Premium Forecasts section. Stay ahead of the news in any market with the Elliott Wave principle.

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