Home > FX, Short-Term Trader > Dollar Could Pullback, But Intermediate-term Prospects Remain Positive

Dollar Could Pullback, But Intermediate-term Prospects Remain Positive

November 15, 2010 Leave a comment Go to comments

The Greenback, thus far, has experienced a solid 4% bounce off its two-year trend support, with the strongest move taking place in the EURUSD. The bearish excesses, built up during the weeks leading into the FOMC meeting, reached an extreme consistent with trade-able lows. In the two days following the meeting, there was a final thrust lower as the ‘johnny-come-lately’ crowd piled into the ‘risk-on trade’ one last time. This pushed price down into a strong support level where a clear divergence in momentum was also present; creating a low-risk opportunity to initiate a bullish campaign in the Dollar.

Extremely Bearish Sentiment + Long-term Price Support + Momentum Divergence = Low-risk Entry

Today’s trade took the Dollar Index (DXY) up to the 50-day sma/ema, which resides just under a trend-line extending back to the June high. I expect some weakness to develop on the initial test of this resistance area, however, as long as the low created on November 4th holds I will remain constructive looking out over the intermediate-term. At the moment, in the absence of an immediate technical pattern or overtly positive fundamental driver, I am leaning on the notion that a correction in the imbalance of market participants’ positioning will eventually fuel further price advancement. The potential for a bullish bottoming formation is also in the cards should the Dollar experience an orderly pullback in the sessions to follow. (See chart below)

Dollar

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Categories: FX, Short-Term Trader
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