Technical Analysis

Chart Of The Day: Dollar Lift-Off Still Has More Room To Run…Keep An Eye On 116

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    The rising has eased a bit today as bargain hunters seem to be returning to risk assets. US index futures contracts on Tuesday were all trading higher after Monday’s tumble.

    The USD has already reached a 20-year high even as the  slipped into a bear market yesterday. However, in the medium- to long-term, we see nothing bearish about the greenback’s trajectory. In our view, it’s on a path to 116.

    The dollar registered a new high in its uptrend since the 2021 bottom, increasing the chances that the higher peaks and higher troughs will continue. However, that red line on the daily chart is curious.

    Dollar Weekly 2016-2022

    Via the broader, weekly chart, it becomes clear that the red line is the neckline of a massive H&S Continuation pattern since 2016. We can also see that the 50-Week MA recently crossed the 200 WMA, triggering a weekly Golden Cross. Note, however, that it being the second crossing within the same range, we aren’t attributing too much significance to it in the current market environment.

    Still, the height of the pattern measures 1,415 pips, implying that the distance from the 102.40 point of breakout will take the greenback to 116.00, the indicated target. In other words, the buck’s ceiling is turning into a floor.

    Finally, the monthly chart provides additional confirmation of the uptrend.

    Dollar Monthly 2008-2022

    On the 14-year, monthly chart it’s obvious that the 200-Month MA supports the current H&S after having been resistant to the H&S that formed the dollar’s bottom between 2004 and 2014. Also, the 50 MMA crossed the 200 MMA during the continuation pattern’s formation, triggering a monthly Golden Cross.

    Trading Strategies

    Conservative traders should wait for the price to rebound after a dip, thereby ruling rule out a double top or for the rally to extend the rally before dipping.

    Moderate traders would either buy the dip or get in on an upside move.

    Aggressive traders could enter a short contrarian position, expecting a pullback, before joining the rest of the market and going long as the dollar moves higher.

    Unless you understand and accept the risks and have a trading plan, do not attempt these trades. Here’s a generic example:

    Trade Sample – Aggressive Short Contrarian Position

    Entry: 105.00
    Stop-Loss: 105.30
    Risk: 30 pips
    Target: 102.60
    Reward: 240 pips
    Risk-Reward Ratio: 1:8

    Trade Sample – Follow-Up Long Position:

    Entry: 102.30
    Stop-Loss: 101.30
    Risk: 100 pips
    Target: 105.30
    Reward: 300 pips
    Risk-Reward Ratio: 1:3

    Author’s Note: The analysis appears in the body of the text. The samples above are just examples. They do not determine the validity of the study. Moreover, these samples are generic. You will dramatically improve your odds if you learn how to incorporate your own timing, budget, and temperament.

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