Taking a step back and the picture becomes clear: USD, at current levels, appears to be missing a much needed pullback on the higher timeframes. We could argue over exact levels but, for the sake of approximation, I suspect we are coiling up in a potential triangle, pennant or topping pattern between 93 and 100. Yes this is a large pattern and not one to be traded (unless you are George Soros) but should always start out analysis at the top and work out way down, as this provides structure, potential direction and of course longer-term targets. From there we can decide which markets we want to trade against the USD as part of a technical ‘top down’ approach to trading.
Regardless of whether FED raise a tiny 0.25% in October or December I can only assume it is already priced in. Historically the Dollar has weakened following the beginning of the previous 3 rate hike cycles and, with so much uncertainty over whether they should or not, why would this time be any different?
I am not picking a major high here but merely pointing out the bullish run has lacked a decent retracement. I produced a video in April last year looking at multi-year cycles, arguing a trough was nearing and for a multi-year bull run to begin and I strongly believe we remain in that bullish cycle with further highs to occur over the coming months.
Taking a closer look I am not convinced by the recent bullish moves. On a positive note the rejection of 93 was defended aggressively, producing a ‘V-Bottom’ along the way, but price action since has seen a shift in the transition between peaks and troughs and beginning to look reminiscent of the prior two double top patterns (highlighted with the blue, bearish ‘eyebrows’).
Also note the 50 and 200 day MA’s are converging to show a loss of momentum over medium and long term. Quiet price action this week can be explained as we await a host of data from the US, with Friday closing the week with Nonfarm payroll. Although this data set will gain a lot of attention I do not believe (unlike some) that it is key to the FED making a decision of their rate rise timing. There is more to consider other than Nonfarm payroll, such as China data out tomorrow and how the markets responds.
So whilst we have a plethora of data over the last quarter of 2015 to get things moving, looking at the charts above, I am not convinced the USD will return to parabolic bullish mode.