When it comes to trading Forex, the most important thing that you can do is figure out what is going on with the US dollar. All major pairs each of the US dollar, so that makes it is extraordinarily important. Furthermore, the US dollar of course is the world’s reserve currency, so it is also used engaging what is going on around the world. As a general rule, the dollar gets a bid when things are a bit more hectic and cautious, so that is worth paying attention to as well. This brings me to the chart below, the US Dollar Index.
As you can see on the weekly timeframe, the market has sold off the US dollar points quite drastically, but we are testing an area that I think is going to cause a relatively significant amount of support. The uptrend line is still very much intact, and it is worth noting that the last several weeks have seen a lot of sideways action after an impulsive move lower. Beyond that, the market had consolidated near the 90 handle as marked by the red ellipse on the chart. For added measure, I have put the Bollinger Bands indicator on this chart as well, and you can see that from a weekly standpoint we are getting relatively close to the bottom of the indicator, and therefore some buyers may look at this as “oversold” at the very least.
This market could very well bounce all the way to the 95 handle without changing much. Because of this, I am paying close attention to the US dollar and it should be noted that we have seen the EUR/USD and the USD/CAD pair stabilize after going decidedly “anti-greenback.” Because of this, I think the US dollar does come back into vogue, at least for the short term. If the market breaks above the 94 handle on the US Dollar Index, you can expect to see stocks selloff, as well as currencies against the US dollar, as you would expect. If the market breaks above the 95 handle, then things get truly interesting because this probably represents some type of systematic shock to the financial system, which quite frankly would not take a lot of imagination to suggest being possible.
At this point, I am very intrigued by this chart. The alternate scenario of course is that we continue to break down, and we have simply been grinding sideways in order to catch our breath after the significant drop. The next several weeks are going to be crucial for the longer-term move in the US dollar, and then by extension anything involving risk appetite.