There's a perfect storm of geopolitical turmoil currently lifting the US dollar. No surprise that the Russian ruble has extended its collapse versus the USD to a record low in offshore trading today amid thin volume.
However, the greenback isn't gaining strength just against the beleaguered RUB. Rather, it's rising vs. all the major currencies, except for the Australian dollar and the New Zealand dollar.
The Aussie is riding high on its good fortune as the currency of a country that's been gifted with abundant natural resources making the land down under a trade powerhouse. And New Zealand's economy rests on its agricultural commodity exports which are in rising demand, given Russia's diminished presence in that arena right now. Plus, the NZD also correlates to the AUD due to their proximity.
The dollar was already pushing higher as the Fed confirmed it was tightening its policy. However, the US has a more immediate tailwind, providing an additional boost. Central banks around the world are padding their global reserve currency holdings amid the upheavals and uncertainty of war, not to mention the sharpest weekly spike in commodities prices over the past 60 years.
This array of fundamentals helped dollar bulls complete a bullish technical pattern.
The Dollar Index completed an H&S continuation pattern. The structure's neckline sloped upward since bulls didn't have enough patience to wait for a measured ride higher but rather just jumped in and catapulted the index higher.
The pattern is called a continuation as it is expected to extend the underlying trend, which in this case is up.
Trading Strategies
Conservative traders could wait for a return move that retests the pattern's integrity before risking a long position in an asset that has already been soaring. They should wait for evidence of accumulation by creating a base in the price above the H&S's neckline.
Moderate traders would wait for the same pullback and might be content with a single long green candle, bouncing off the pattern's support.
Aggressive traders should wait for a corrective dip to reduce exposure.
Trade Sample – Aggressive Long Position
- Entry: 98.00
- Stop-Loss: 97.50
- Risk: 50 pips
- Target: 100.00
- Reward: 200 pips
- Risk-Reward Ratio: 1:4
Author's Note: The above is just a sample. By definition, that means we are not asserting this is the only correct way to approach this trade. You must write a trading plan that addresses your timing, budget, and temperament. Until you learn how to do so, you may use your samples for general guidance and practice. However, don't expect to profit until you learn to operate according to a style that suits you.