TheTradingReport

Just a thought, but is the Dollar setting up for another rally?

The US Dollar hasn’t turned up for work this week, allowing the Euro to try its luck back above $1.40, Sterling to recapture $1.60 and the Canadian Loonie to lose the C$1.07 tag.

This looks a bit like a return to last year’s winning formula when investors used cheap Dollars to pile into higher-yielding risk- and gold. This also may turn out to be a prolonged move; a reaction to the Fed’s assurance that they’re in no hurry to raise rates.

However, that’s become a riskier game where now the question of higher rates will resurface on a regular basis, as will fears over the next Euro-country to be in danger of going belly-up.

The politics and economics are a less reliable guide, so let’s check out the chart:

The thing that I’m watching here is a possible bullish flag pattern from Monday’s high. The thing is it’s far from perfect, not least because it’s only a few days in the making. But on a working basis we’re lucky to find patterns looking as neat as in the textbooks. Check out the short, lop-sided flag in the latter part of January; it was far from perfect, but produced the expected outcome of a rally similar in distance to the first flagpole.

The Dollar index doesn’t look close to breaking higher just yet, and I wouldn’t look to pre-empt the move, but it’s worth watching for a close above 79.40. As far as the other technicals go, the RSI at 61, the MACD and the Parabolic all remain positive. The 21-day moving average is also gently sloping higher.

The other way I could play this is to watch for a test of the support line at 78.75. If this holds then I might enter a cheeky long bet with my stop loss just below the line.

It goes without saying that in the period surrounding tomorrow’s central bank meetings and Friday’s payrolls data, I’ll be less likely to open new trades.

Happy Trading