I’m Not So Sure About This Rebound
The Dollar Index hit a bottom recently and began a reversal. I myself have expounded on the idea even calling for the possibility of a full reversal. What I’m seeing now, however, isn’t all that bullish despite an appearance of strength. I think traders should be cautious with their bullish bets and get ready to make a bear trade.
The reasoning isn’t all that simple but come down to the pandemic. The global rebound is underway and it looks like Europe and Asia are far ahead of the U.S. That means firming economies in those regions and along with them firming policy. I’m not saying that any central banker in the EU or Asia regions are going to turn hawkish, only that they as a group will be far less dovish than the FOMC. That means the dollar could move much, much lower.
The daily chart is telling but may be hard for those unaccustomed to making bear trades to visualize. From the bull perspective, the chart looks set up for a nice bounce. The MACD and stochastic are both showing what I might classify as strong bullish entry signals if not for one thing. The prevailing trend is bearish and I don’t see a reversal pattern forming. What I see is a triangle, a triangle within a bear market, a bear market triangle, also known as a continuation pattern, a pattern that usually leads prices lower.
In that light, the index is set up to fire a nice bearish entry signal, exactly the opposite of what it appears to be showing now. And that is only right. The hardest part of making great bullish trades at the very best times is that, at those times, the indicators are probably showing a bearish signal while price action is testing support. Just like it is testing for resistance now. So, a downward movement is what I see and my targets aren’t pretty. Unless you’re a U.S. manufacturer of anything looking to sell on the world market.
My first target is the $95-$96 region and the bottom of a long-term trading range. If that support target fails the next target is down near the $94 region and then way way down near $90.