Greenback October NFP Redux?

Talking Points

• Record positive dollar sentiment this week
• Correction looming?

Unfamiliar with Gann Square Root Relationships? Learn more about them HERE.

Nobody can deny that the USD has been on a very impressive run of late – especially against the European currencies where the Buck has registered several new multi-year highs over the past few days. Confidence in the Dollar not surprisingly is very high. Just this week the widely followed Daily Sentiment Index reached a record 98% bulls in the DXY! Such one-way conviction always makes us a little nervous and with US employment data due out in just a few hours we can’t help but notice the similarities between the current environment and the environment that preceded the payrolls print in October. Leading up to that payrolls number we had the FXCM US Dollar Index at new multi-year highs and sentiment and positioning at similar almost euphoric levels. The print was a good one for the dollar, but ended up being a crescendo of sorts as the index turned around on Monday and embarked upon a multi-week correction. With so much of the market leaning the same way and given the fact that January often sees mid-month reversals we would not be surprised to see something similar occur this time around. Aggressive traders can look to go short on a close under 11,650 in the FXCM US Dollar Index - if it occurs in the next couple of days.

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FXCM US Dollar Index Chart: January 9, 2015

Charts Created using Marketscope – Prepared by Kristian Kerr

Key Event Risk in the Week Ahead:

LEVELS TO WATCH

Resistance: 11,715(YTD High), 11,770 (Fibonacci)

Support: 11,640 (Gann), 11,524 (Gann)

Strategy: Sell FXCM US Dollar

Entry: Sell FXCM US Dollar on a close below 11,653

Stop: Daily close over 11,715

Target: 11,530

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter at@KKerrFX.