During the past week in the US Dollar Index, we have seen a major break of the 95 handle. This of course is a large, round, psychologically significant figure, and an area that has been contended several times in the past. However, what is most disturbing about this chart for the hope of the US dollar strengthening is that we close that the absolute bottom of the range.
For those of you who are newer Forex traders, you will be well served by paying attention to this chart. Quite frankly, if you understand where the value of the US dollar is going, you have a fair shot of making profit in the currency markets. After all, all of the major currency pairs feature the US dollar, and it does tend to move in the same general direction against most currencies. There are a multitude of reasons why the US dollar may be strengthening or weakening, based upon risk appetite, bond yields, central bank policy, and a whole slew of other issues like the coronavirus figures. However, it is our job as traders to simply play the market that is, not the market that “should be.”
While I am completely agnostic as to which direction this goes, a quick glance at this chart tells me that we are most certainly in an area that is showing a lot of weakness. I am watching a lot of people that I respect in the financial industry go on and on and on about possible “dollar squeeze”, and that the US dollar is more than likely going to spike. However, they have been saying that for several months now and that simply is not playing out. You have to be careful about what you pay attention to, and who you listen to. While I absolutely shudder at the thought of saying something like “this time it is different”, the reality is that markets change. Yes, there may come a day when the US dollar suddenly spikes much higher, perhaps based upon fear. However, there is no sign of that on the charts and you have two choices here, you can either be “correct”, or more importantly you can become “profitable.”
Looking at the US Dollar Index, it certainly seems as if we are going to see a move down to the 94 handle, perhaps followed by the 93 handle over the next couple of weeks. We have just broken through significant psychological support, but we may have to retest the 95 handle. What does this mean for the rest of the Forex markets? Simple, we could see a little bit of a pullback in the Euro, British pound, and Australian dollar, but those will be just that: pullbacks. At the end of the day, the trend has shifted rather drastically against the US dollar, at least for the time being.