Dollar Hollar: Near & Medium Term USD Index Trade Locations
With a relatively quiet week on the US data front and ahead of tomorrows ECB I wanted to take a look at some near to medium term potential trade locations I am monitoring in the USD Index and update you on my current long exposure plan.
As regular followers of this report will know I retain bullish exposure in the USD Index from .9700 ultimately I am anticipating a topside thrust from the consolidation pattern we are trading in at the moment. This top side thrust should act a s near to medium term terminal move, from which we should anticipate at a minimum a correction to the recent advance this correction can provide a platform for traders to re-engage the broader upside advance.
Technically, the set up at the moment appears to be developing momentum for the top side thrust i reference. The indicators support this view as we can see On Balance Volume is starting to tick up and threatening to break higher, psychology has tested the neutral level and is finding support and starting to tick up, Linear Regression has also started to turn higher. From a price action perspective we continue to hold the ascending bullish trend line and are likely to print our ninth inside bar on the daily chart. The momentum supports a topside break on the evidence the of the charts.
It is important that we clarify some invalidation levels for the imminent upside break that I anticipate, which would suggest a potential consolidation top also portending a deeper correction which would still facilitate a trend re-entry opportunity.
If price breaks lower from current levels here is the market map of the probable path of price I will be using to re-position as highlighted in the chart below I would be watching for an equidistant swing to retest the apex of broader consolidation pattern which at the 95.00/96.00 level where I would be looking to re-enter long postilions to trade the upside pattern mapped in the chart, ultimately price would still test the 102/103 level highlighted in the first chart.
Based on the current market structure and price action the bullish upside objective of 102/103 would only really come into question on a sustained breach of the consolidation base at 92.50.
The initial retest of the 92.50 base will potentially present a short opportunity in the converse to the bullish trade set up outlined above. The bounce from the this retest of the base should be relatively shallow, retesting the apex of the consolidation from below, ultimately failing the 95/96 level where I would look to set short positions targeting a move 89/88.
The sustained breach of the base would likely create a further short opportunity, with the fourth test of the base, price should break lower to retest the spike highs at 88/89, where a pullback should develop to retest the base of the consolidation pattern from below. This should also present a shorting opportunity as traders caught in positions from the base failure look to exit losing positions and new shorts enter the market. I would anticipate another leg of downside action whereby price ultimately tests the primary ascending trend line from lows as mapped in the chart below.
Now as I have stated many times I don’t just blindly trade these market maps and price can certainly deviate from my probable overlays, when it does i re-asses. I use this charts as a guide to what I am expecting, as you will see by looking back through my weekly reports the charts I post have done a stellar job of guiding us through the price action over the last few months.
I use these charts to prepare for trading opportunities and where the market maps sync up with the price action I drop to intraday charts to watch for reversal patterns at the per-defined trading levels to execute my trades. For those who took the 97.00 entry you are currently sitting on about 200pips of profit the trade should be risk free and you should be watching for the topside thrust referenced above to test the next action area 102/103.
For updates on trade of the day set ups and the other trades I am currently monitoring be sure to follow me on Twitter @LFXPatrick