• The US dollar is enjoying its second best three month period in over two decades and the rally is now starting to attract the interest of FX strategists from major investment banks.
• “We’re at the early stages of a USD bull run” says HSBC’s David Bloom. Meanwhile, Emanuella Enenajor of Bank of America believes that the US dollar is still well below its 20 year exchange weighted average.
• So should we all into US dollar index positions and short the major dollar pairs? Quite possibly, but we also need to be aware of the danger of a short term pull back before the trend kicks in again.
US dollar Index weekly chart:
• The weekly dollar index chart above needs some explaining. The upper window tracks the price in relation to the Parabolic SAR indicator. This indicator roughly tracks the arch of a trend, rather like hawkeye tracks the bounce of a tennis ball.
• The indicator in the bottom pane markets the size of the gap between the Parabolic and the price. A high red level indicates a large gap relative to the past that could be a sell signal, while a large green level indicates a large gap that could be a buy signal.
• The horizontal blue line shows where the spread is at the moment. As you can see, the current bull run is significantly above the Parabolic SAR, reaching levels that have previously triggered pull backs in the past. Like all indicators, this tool does not pinpoint exact turning points, but is a useful early warning. It’s fairest to say that it signals the start of overbought conditions.
• Long term, the dollar index could well have a sustained rally, especially as US policy makers turn off the QE taps and increase interest rates. However, in the short term anything is game, especially against the euro which found support on Thursday following Draghi’s press conference.
• One pair that could benefit from a US dollar pull back is the beleaguered NZD/USD. The Kiwi has been dumped by most traders since the start of the summer and this week saw fresh lows as the country’s new PM spoke of 1.6500 as being the Goldilocks level for the exchange rate. There was further pressure as it emerged that the RBNZ had been a net seller of the currency, mounting speculation of further rate cuts.
• Yet the NZD/USD has bounced back through the second half of the week, especially on improved economic reports from China and Australia. There is also a significant support level in the 0.7700 level. Politicians have a history of attempting to dabble in FX, but rarely get the outcome they desire.
• While the NZD/USD could well see further downside once the US dollar index resumes its sell off, but in the short term, there is a buying opportunity here.
Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. Binary.com accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.
The Dollar Bull Run – We Ain’t Seen Nothing Yet?
Morning Report: 09.00 London
• The US dollar is enjoying its second best three month period in over two decades and the rally is now starting to attract the interest of FX strategists from major investment banks.
• “We’re at the early stages of a USD bull run” says HSBC’s David Bloom. Meanwhile, Emanuella Enenajor of Bank of America believes that the US dollar is still well below its 20 year exchange weighted average.
• So should we all into US dollar index positions and short the major dollar pairs? Quite possibly, but we also need to be aware of the danger of a short term pull back before the trend kicks in again.
US dollar Index weekly chart:
• The weekly dollar index chart above needs some explaining. The upper window tracks the price in relation to the Parabolic SAR indicator. This indicator roughly tracks the arch of a trend, rather like hawkeye tracks the bounce of a tennis ball.
• The indicator in the bottom pane markets the size of the gap between the Parabolic and the price. A high red level indicates a large gap relative to the past that could be a sell signal, while a large green level indicates a large gap that could be a buy signal.
• The horizontal blue line shows where the spread is at the moment. As you can see, the current bull run is significantly above the Parabolic SAR, reaching levels that have previously triggered pull backs in the past. Like all indicators, this tool does not pinpoint exact turning points, but is a useful early warning. It’s fairest to say that it signals the start of overbought conditions.
• Long term, the dollar index could well have a sustained rally, especially as US policy makers turn off the QE taps and increase interest rates. However, in the short term anything is game, especially against the euro which found support on Thursday following Draghi’s press conference.
EUR/USD weekly chart:
A good way to play this is a ONE TOUCH trade predicting that the EUR/USD will TOUCH 1.2500 within 14 days could return 136% if successful. Or put another way, betting that the EUR/USD will rise and touch 1.2500 at least once before the close on the 16th of October could return £23.57from a £10 stake.
Kiwi could have a short flight
• One pair that could benefit from a US dollar pull back is the beleaguered NZD/USD. The Kiwi has been dumped by most traders since the start of the summer and this week saw fresh lows as the country’s new PM spoke of 1.6500 as being the Goldilocks level for the exchange rate. There was further pressure as it emerged that the RBNZ had been a net seller of the currency, mounting speculation of further rate cuts.
• Yet the NZD/USD has bounced back through the second half of the week, especially on improved economic reports from China and Australia. There is also a significant support level in the 0.7700 level. Politicians have a history of attempting to dabble in FX, but rarely get the outcome they desire.
• While the NZD/USD could well see further downside once the US dollar index resumes its sell off, but in the short term, there is a buying opportunity here.
A good way to play this is a ONE TOUCH trade predicting that the NZD/USD will touch 0.8000 within the next 14 days for a potential return of 119%. Or put another way, betting that the NZD/USD will rise and touch 0.8000 at least once before the close on the 16th of October could return £21.89 from a £10 stake.
Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. Binary.com accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.
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