Talking Points:
-USDollar Opening Range – Bearish Bias
-Ichimoku Shows Low USD Upside Momentum
-Ichimoku Trade Idea for the Next USD Move
“Big movements take time to develop”
-Jesse Livermore Trading Rules, #15
2014 has already provided traders with strong moves as institutions and individuals alike try to get positioned for the big moves of the year. In late 2013, many banks and analysts were singing the praises of the USDOLLAR based on the anticipated effect of tapering the easy money policies by the Fed. The taper came, but so did weak U.S. data and the U.S. has dropped since the taper was announced on December 18th, 2013.
However, a few months later, the USDOLLAR sits at a key juncture that could determine the direction for the next few weeks or months. A few tools show that a bearish bias is the most prudent view for USDOLLAR but Ichimoku is yet to confirm that view. As a trend following indicator with a momentum component and trend filter, we’ll look at what needs to develop before a trader should look to get carried away with a short USDOLLAR bias according to Ichimoku.
USDollar 2104 Opening Range – Bearish Bias
If you’re unfamiliar with the Opening Range Strategy also known as ORBO, it is a breakout strategy. Most commonly, ORBO is an intraday strategy for traders who don’t like to hold risk overnight but would rather capture the meat of intraday moves. However, the concept applies to more macro strategies as well such as weekly, monthly or annual opening ranges.
Learn Forex: USDOLLAR Opening Range
Presented by FXCM’s Marketscope Charts
The power of ORBO lies in the fact that large institutional traders know that the best way to make large sums of money in the market begins with losing very small sums of money which means that you get out of a trend when it goes against you. Above, you’ll notice the range for 2014 takes the high and low of price for the first two weeks of 2014 bracketed by vertical lines. Once you’ve identified the opening range, you then apply a volatility filter that is often a percentage of the Average True Range plus a time component so that if a breakout of price & time hold, then you can count the breakout as legitimate.
The key levels from an ORBO perspective on USDOLLAR are as follows:
Opening Range High: 10,728
Bullish Volatility Filter: 10,762
Opening Range Low: 10,619
Bearish Volatility Filter: 10,585
You can see above that we had a bearish Opening Range break through the volatility filter of 1xATR which is the teal box below the OR. From a bias perspective, this means that large institutions are unlikely to get long USD against most currencies until bullish life is already being shown. To invalidate the bearish focus on USDOLLAR at this juncture, you would need to see a breakout above the Bullish Volatility Filter of 10,762 yet until then the bias would be for further USDOLLAR weakness.
Ichimoku Shows Low USD Upside Momentum
Ichimoku is multiple indicators wrapped into one. The cloud provides you a bias for the overall trend and if price is above the cloud, then your inclination should be for trend resumption and higher prices and if price is below the cloud then the safer bet is to look for lower prices in the near future. The component that many traders learn to love with Ichimoku is the lagging line that acts as the momentum component to Ichimoku.
Learn Forex: USDOLLAR Is Turning Down According To Ichimoku
Presented by FXCM’s Marketscope Charts
Above, you can see two highlighted sections where the Lagging Line sat in the cloud showing a critical momentum juncture on the chart. The first highlighted section broke through in September 2013 and price pushed through the cloud, causing the USDOLLAR to drop 300+ points. If the US Data continues the trend we’ve seen in thus far, another drop could be in store of similar size. What’s more, in October 2013 when the USDOLLAR was searching for a bottom, many majors like EURUSD hit multi-year highs but another drop in the USDOLLAR index could see the highs in late 2013 surpassed.
Ichimoku Trade Idea for the Next USD Move
Ichimoku Trade: Sell USDOLLAR If Lagging Line Closes Below Cloud ~ Price < 10,520
Stop: 10,600 (Technical Invalidation Point on the Chart & 38.2% Fib Recent Move Lower)
Conservative Limit: 10,450 (76.4% Fib Retracement of Oct. ’13 Range)
Aggressive Limit: 10,350 (61.8% Fib Expansion off July ’13 high, Oct. ’13 Low, & Jan. ’14 Lower High)
If this is your first reading of the Ichimoku report, here is a recap of the traditional rules for a sell trade:
-Price is below the Kumo Cloud (Showing you a clear downtrend or bearish stance)
-The trigger line (black) is below the base line (light blue) or is crossing below
-Lagging line (bright green) is below priceaction & & cloud (This is the trade trigger)
-Kumo ahead of price is bearish and falling (red cloud = bearish Kumo)
FX Traders In United States: If you cannot trade the USDOLLAR index because you are in the United States yet want trade ideas off the USD index then you should look to either GBPUSD, AUDUSD, or NZDUSD via the Technical Analyzer.
Alternative Scenario: If the bearish breakout does not materialize and 10,520 doesn’t break, then a move above 10,650 would invalidate current downtrend and break above 2014 Opening Range Buy Trigger of 10,762 would trigger a bullish reversal for 2014.
Happy Trading!
---Written by Tyler Yell, Trading Instructor
To contact Tyler, email tyell@dailyfx.com
To be added to Tyler’s e-mail distribution list, please click here.
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