DXY - Dollar Index Ready For Reversal Or Retrace
Many financial instruments are either positively or negatively correlated and the price action of these instruments would reflect the recent strength in Dollar as represented by DXY Index.
Due to almost vertical move in DXY since May 2014 low, has lead many to think that Dollar is so strong that it would just continue in parabolic rise without even normal retracement.
I accept that everything in the public domain in terms of fundamentals suggest that Dollar (DXY) should continue to attain much higher levels which is feasible and in that case we might only get a retrace before continuing higher.
However, there are many factors at play and often very hard or near impossible for us as retail traders to weigh all these and give correct scoring to arrive at a specific level on back of that. But many things could come right out of the blue and seemingly unexpected like the SNB dropping the peg with EURUSD.
It is very probable that the BOJ's QE has possibly been used by many leveraged funds investing in USD and this could prove to be a potential problem, in that if this was to reverse the tide will turn and could be major catalyst for initiating USD weakness. In fact even Japans Authorities have acknowledge that the weakness in YEN and particularly the speed is not justifiable by fundamental. They also seem to think that Leveraged Funds are the real reason for the pace of YEN weakness.
Regardless, whilst it not possible to state that this will be a major top (though I think it is very likely), at least is now due for normal retracement. If it is to retrace then normal 50% -61.8% of it's rise since May 2014 is to be expected.
Reasons for possible topping (intermediate or reversal) zone are:
1. It has almost retraced 50% of the move from 2001 high to 2008 low and other fib clustering in the region of 93-94.
2. Has reach the upper extremity of the rising trend channel from 2008 low.
3. The move up from April 2011 low appears to be an ABC Zigzag. If correct, then wave C of the zigzag is now nearly complete with minor 5 waves clearly visible. So even if it make new higher high from here this would be completing the final wave v of 5.
4. ADX is fully extended and is approaching 58 on weekly chart with 50-60 often considered the upper limits of the ADX.
5. +DMI is showing potential divergence with price suggesting buying pressure is weaker compared with the previous high in this cycle.
6. On daily chart (see image below) RSI divergence is clearly visible and the last gap up at 91 could be potentially an exhaustive gap which normally appears towards completion of the cycle.
7. Possible time symmetry (see monthly chart) suggest that Jan 2014 is very significant month.
If we have the anticipated retracement or reversal in DXY, then to varying degree this would be reflected in all USD related assets such as Oil, Gold & Silver etc and USD Currency Pairs.
Hence any bullish trades based on USD strength should be managed well so as not to be caught on the wrong side.
As always, do your own analysis for your requirement. Select to follow me and the chart for notification of future updates. If you like the analysis please indicate this with comments and likes and share it with other you know who likewise might benefit. If you have alternative views please share this with details rather than just dislike so all can learn.
Thanks you for taking the time to read my analysis and hope it proves useful.
DanV
Due to almost vertical move in DXY since May 2014 low, has lead many to think that Dollar is so strong that it would just continue in parabolic rise without even normal retracement.
I accept that everything in the public domain in terms of fundamentals suggest that Dollar (DXY) should continue to attain much higher levels which is feasible and in that case we might only get a retrace before continuing higher.
However, there are many factors at play and often very hard or near impossible for us as retail traders to weigh all these and give correct scoring to arrive at a specific level on back of that. But many things could come right out of the blue and seemingly unexpected like the SNB dropping the peg with EURUSD.
It is very probable that the BOJ's QE has possibly been used by many leveraged funds investing in USD and this could prove to be a potential problem, in that if this was to reverse the tide will turn and could be major catalyst for initiating USD weakness. In fact even Japans Authorities have acknowledge that the weakness in YEN and particularly the speed is not justifiable by fundamental. They also seem to think that Leveraged Funds are the real reason for the pace of YEN weakness.
Regardless, whilst it not possible to state that this will be a major top (though I think it is very likely), at least is now due for normal retracement. If it is to retrace then normal 50% -61.8% of it's rise since May 2014 is to be expected.
Reasons for possible topping (intermediate or reversal) zone are:
1. It has almost retraced 50% of the move from 2001 high to 2008 low and other fib clustering in the region of 93-94.
2. Has reach the upper extremity of the rising trend channel from 2008 low.
3. The move up from April 2011 low appears to be an ABC Zigzag. If correct, then wave C of the zigzag is now nearly complete with minor 5 waves clearly visible. So even if it make new higher high from here this would be completing the final wave v of 5.
4. ADX is fully extended and is approaching 58 on weekly chart with 50-60 often considered the upper limits of the ADX.
5. +DMI is showing potential divergence with price suggesting buying pressure is weaker compared with the previous high in this cycle.
6. On daily chart (see image below) RSI divergence is clearly visible and the last gap up at 91 could be potentially an exhaustive gap which normally appears towards completion of the cycle.
7. Possible time symmetry (see monthly chart) suggest that Jan 2014 is very significant month.
If we have the anticipated retracement or reversal in DXY, then to varying degree this would be reflected in all USD related assets such as Oil, Gold & Silver etc and USD Currency Pairs.
Hence any bullish trades based on USD strength should be managed well so as not to be caught on the wrong side.
As always, do your own analysis for your requirement. Select to follow me and the chart for notification of future updates. If you like the analysis please indicate this with comments and likes and share it with other you know who likewise might benefit. If you have alternative views please share this with details rather than just dislike so all can learn.
Thanks you for taking the time to read my analysis and hope it proves useful.
DanV
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