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Dollar Currently at Significant Inflection Point

GFC wanted to post this update on the U.S. Dollar to alert our readers on a high probability trading opportunity.  Last week the dollar rallied on light volume through the holiday week to approach the previous 2015 high at 100.39.   This has many dollar bulls excited, however optimistic sentiment toward the buck seems to have reached an extreme with so many analysts expecting the dollar to continue to rally and achieve new highs for the year.

The current technical picture is sending strong caution signals to the bulls.  The first major factor the bulls must consider is the strong overhead resistance that prices are now confronting.  The high of the year which was achieve on March 13th, has not been tested since.   In March the dollar encountered substantial selling pressure as a year-long rally came to an abrupt end just above the 100 level.  Additionally, recent price action in November has seem diminishing returns in terms of both bullish momentum and price action.   While the US Dollar has been able to achieve a series of higher highs and higher lows this month and keep the bullish trend intact, it has done so at the expense of momentum as price action as devolved into a much slower-upward grind without much conviction.

Finally, during the recent rally of the past 5 weeks, the US Dollar has charted out a well defined internal trend line which initially acted as resistance and is now acting as support.  The dollar reacted to this line on 8 separate daily occasions, and therefore this trend line should be considered very important.  The current technical picture of the U.S. Dollar Index is provided below.

29NOV15-1

GFC believes that because of the tentative overlapping price action leading into a major area at 100.39, combined with waning price momentum, and a strong possibility of a break of a significant support trend line, the timing this week looks very ripe for a pullback in the US Dollar.  To take advantage of this pullback, it is helpful to look at the EURUSD currency pair which comprises 47% of the US. Dollar Index.

Not surprisingly, we can a similar set up for the Dollar against the Euro.  The euro looks like it has imminent potential to rally against the dollar which means dollar weakness.

29NOV15-2

The Euro, opposite to the dollar is sporting a very nice downward sloping resistance trend line, while also experiencing a loss of downward price momentum.  Reflecting the dollar, the euro has approached a significant support area that seems likely to hold, at least temporarily.  If/when the Euro is able to break this trend line, it will at the very least signal a short term change in trend to alleviate the oversold condition.

 

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Phil Olson has been a devoted student of the financial markets since childhood. With over ten years worth of experience trading various investment products, he has developed an insightful way of discerning the price behavior of the market. His trading career took off when he proved to be on the correct side of the 2008 financial crisis by shorting stocks such as Lehman Brothers, Fannie Mae, and Freddie Mac. Since 2009, after capitalizing on the crisis-driven downdraft in financial stocks, he turned his attention to the foreign exchange market and became a successful currency trader. His extensive educational background in the areas of business and finance has afforded him the benefit of being able to apply two types of analysis (Technical & Fundamental) simultaneously to the market in order to identify high-probability trade opportunities. With his distinct and complementary approach to navigating the investment landscape, Phil became a trusted source for financial advice among his family, friends, and co-workers. Prior to partnering with Matthew to create GeoFront Capital, Phil Served as a Captain in the United States Air Force as a Contracting Officer responsible for authorizing, writing, and administering multi-billion-dollar contracts between the Air Force and the Aerospace Defense Industry. His successful experiences in handling large amounts of fiduciary responsibility on behalf of both Congress and the American tax-payer lend themselves well to the financial advisory services of GeoFront Capital.

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