The Dow Jones FXCM Dollar Index Basket has quietly been making higher highs and higher lows. Time will tell if this is the start to a new uptrend or if this is an upward retracement of the overall downtrend. From March 11, 2011 to April 29, 2011, the DJ FXCM Dollar Index Basket (USDOLLAR) was in a strong downtrend and lost 6% of its value. This means the value of the US Dollar was declining.
From May 2, 2011 thru today, the USDOLLAR has rebounded swiftly and gained back 4% (see below). This instrument (USDOLLAR) is available on FXCM demo accounts and is likely to be made available for live trading in the next few weeks.
Until then, your opinion of the direction of USDOLLAR can help you decide which pair to trade.
(Created using FXCM’s Marketscope 2.0 charts)
One way to determine strength of a trend is to see how it behaves under differing conditions. The chart below shows the percentage change of the US Dollar versus the named currency since this new bull move in the USD. (For example, EUR at 5% means the USD has gained 5% versus the EUR since May 2.)
| Majors | EUR | JPY | GBP | CHF | AUD | NZD | CAD |
|---|---|---|---|---|---|---|---|
| May 2, 2011 to present | 5% | 1% | 3% | 2% | 4% | 3% | 3% |
| (% USD Change Versus the Named Currency) | |||||||
| Exotics | SGD | SEK | DKK | TRY | ZAR | NOK | MXN |
| May 2, 2011 to present | 2% | 5% | 6% | 6% | 7% | 7% | 2% |
| (% USD Change Versus the Named Currency) |
US Dollar Bears – Red Highlights
The red highlights note a currency that has held its value as the USD was gaining strength. As the DJ FXCM Dollar Index Basket was gaining 4%, the red highlighted pairs were not gaining as much indicating those currencies have been relatively strong too. Therefore, look for technical setups to sell short the red highlights as that would be playing for USD weakness. Below is a sell short trading opportunity on the USDCHF.
(Created using FXCM’s Marketscope 2.0 charts)
The USDCHF is bumping up against the downward sloping black resistance line. Sell short near current prices at .8837 with a stop just above .8900. If the price moves in our favor, look to take profits near .8700.
US Dollar Bulls – Green Highlights
It appears the best opportunity for going long the US Dollar is through one of the exotic pairs. Notice how as this current USD move has gotten stronger, the pairs that have moved the most are the exotics (green highlights). For example, the USDZAR is a pair I have been trading ( “ZAR She Goes!” ) and the ZAR (South African Rand) has lost 7% of its value against the USD during this recent move. Although the EUR has been capturing the headlines with the talks about the PIIGS, the ZAR has actually been moving with greater velocity. This doesn’t mean the USDZAR is better than the EURUSD, except the USDZAR has been moving at a stronger pace.
(Created using FXCM’s Marketscope 2.0 charts)
Prices are testing resistance near 7.0675. If you missed the long entry on the maroon support line, look to enter long on a breakout trade near 7.0675. Place your stop just below the recent swing low and the next level of resistance is the 7.2000 which would be the first profit target.
(For more on trading this exotic, scroll to the bottom of “ZAR She Goes!” )
http://www.dailyfx.com/forex/education/trading_tips/trend_of_the_day/2011/05/13/ZAR_she_goes.html
For more on breakout trading, join me this Wednesday (May 25) at 16:00 GMT for a live webinar on High Probability Breakout Trading. The webinar is located at DailyFX.com :
(http://www.dailyfx.com/live_forex_trading_room/ )
Jeremy Wagner contributes to the Instructor Trading Tips articles.
http://www.dailyfx.com/how_to_trade_forex/course_trading_tips
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