Looking at a Dollar retracement

Author: Giles Coghlan | Category: News

USD pullback 

How to technically manage a Dollar retracement . 

The latest market chatter is how much is the latest dollar strength a retracement vs a shift in the trend? Now in one sense a retracement has to be a partial shift in the trend, at least of the heavy dollar selling that we have seen into the end of last year. Also, risk off tones will benefit the USD, but that doesn't necessary mean a shift in the trend. So, sometimes, when there is uncertainty looking at the technical picture can help us to see areas of opportunity ahead of time.

A big technical picture on the DXY

Case for a trend change. Step number 1: A break of the descending trend line. This is the key trend line on this chart as it is the high preceding the most recent low. This break is significant and it has already happened. It shows a probable 'trend' change (or pullback) is underway. 

USD pullback 

Case for a trend change. Step number 2: a retest of recent lows. This is still to happen. However, if we get a pullback to the recent lows and a rejection of those prices this tells us a trend change/retracement is probable

DXY

Confirmation of a retracement. Step number 3. If we see a break higher of the recent highs in the DXY that will confirm a pull back. Due to the narrow reward here (a possible return to 93.00) a favourable entry would be on a rejection of a recent low re-test. That should provide a low risk high reward entry.

Bloomberg dollar index

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