Chart Of The Day: Win/Win For Dollar Amid Fed, Trade Moves
Investing.com | Feb 21, 2019 15:01
The Fed's messages are a powerful driver for the U.S. dollar. The market's initial dovish interpretation of the Fed's 'patience' with further rate hikes and 'flexibility' regarding balance sheet reduction was confirmed by the publication of its January meeting minutes yesterday.
Following the release, the USD rebounded from its lowest level in two weeks. It has added a further 0.15% today, trading near the top of the session.
However, the trade war with China is also having a significant effect. Over the past year, the dollar has found itself in a unique dynamic: advancing on risk-on, every time U.S.-China trade tensions eased, and on risk-off, when trade concerns returned to the spotlight.
Traders will now shift their focus, even beyond the U.S.-China trade negotiations. President Trump said yesterday he would impose tariffs on European cars if he doesn't reach a deal with the EU. Any headlines of a trade war with Europe and with Japan would see the dollar strengthen on its safe haven status.
We have been bearish on the greenback since December. We now estimate that January's repeated test of the 95.00 level may have been a bottom.
The dollar index has since established a rising trend in the short-term, with an ascending peak-trough series. The bottom retested the uptrend line since the February 2018 bottom above 88.00, in which the medium-term trend continued rising. This was reinforced by the 200 DMA, from where the price jumped over 2% with a whopping, 8-day straight advance.
Yesterday's low retested a former downtrend line since the November top of a symmetrical triangle and has now found a support there, reinforced with both the 50 and 100 DMAs.
If prices close above 96.68, they will demonstrate enduring support at the Jan. 24 peaks, suggesting continued demand, which would propel the price higher.
After the Jan. 24 peak of 96.68 is reclaimed, a fresh peak above the Feb. 15, 97.37 recent peak would attest to the short-term uptrend integrity, significantly increasing the outlook for bulls to take out the Dec. 24, 97.71 peak, to the highest level since May 2017.
h2 Trading Strategies - Long Position Setup/h2Conservative traders should wait for a new peak in the medium term trend, above the Dec. 24, 97.71 peak, before committing to the short-term uptrend.
Moderate traders may enter a long position with a close above the Jan. 24, 96.68 peak, suggesting the short-term uptrend remains intact.
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Aggressive traders might risk a long position now, to get into the presumed upcoming rally earlier than the rest of the crowd, while also entering closer to the strongest, recent support, yesterday's low, the lowest level since this month's rally.
Trade Sample
- Entry: 96.50
- Stop-Loss: 96.25
- Risk: 25 pips
- Target: 97.25, below the Feb. 15 peak
- Reward: 75 pips
- Risk-Reward Ratio: 1:3
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