Chart Of The Day: Will The Dollar Rally Return?

The dollar climbed for the second day after Philadelphia Fed President Patrick Harker said yesterday that his central bank should begin discussing the time frame for paring back its bond-buying program. Reducing this liquidity in the system would most likely result in a jump in the value of the dollar.

Dollar Index Daily

The dollar climbed above its downtrend line since the Mar. 31 high for the first time, yesterday. While the price closed above the line, it closed at nearly the same price as it opened. As of now, the dollar actually created a medium-sized green candle.

Supply and demand may be forming a small rounding bottom. If the price closes above 90 we would consider it complete.

We have been bearish on the dollar for many months, until it completed a falling wedge. We then gave a bullish call, until it completed a rising wedge, to which we gave a medium-term short call while maintaining our long-term bullish stance. If the price will complete this rounding bottom, we expect it to retest the top of the small rising wedge at 93.50.

The MACD’s short MA crossed above the long MA, after bottoming out—and this is important—demonstrating how the broad trend is turning.

The 50 DMA fell to the top of the 100 DMA, which could be a support.

Trading Strategies

Conservative traders should wait for the rounding bottom to complete, followed by a return move that retests the pattern’s integrity, before committing to a long position.

Moderate traders would wait for the same breakout and dip, for a better entry, if not for further confirmation.

Aggressive traders could enter a long position at will, provided they accepted the higher risk that corresponds to the higher return for entering before the rest of the market. A trading plan is imperative. Here’s an example:

Trade Sample

  • Entry: 90.00
  • Stop-Loss: 89.50
  • Risk: 50 pips
  • Target: 91.50
  • Reward: 150 pips
  • Risk-Reward Ratio: 1:3
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