Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Chart Of The Day: How To Trade The U.S. Dollar In Today's Contradictory Market

By Investing.com (Pinchas Cohen/Investing.com)ForexJun 27, 2022 09:41AM ET
www.investing.com/analysis/chart-of-the-day-how-to-trade-the-us-dollar-in-todays-contradictory-market-200626334
Chart Of The Day: How To Trade The U.S. Dollar In Today's Contradictory Market
By Investing.com (Pinchas Cohen/Investing.com)   |  Jun 27, 2022 09:41AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The dollar extended a decline from a 20-year high, on lower than anticipated US economic data releases. The greenback slid on Friday after US consumer morale hit an all-time low, as measured by the consumer sentiment index. The reading of 50.0, missing the 50.2 forecasts, is the lowest level since the University of Michigan began compiling the data in November 1952.

Today, the dollar dropped further, and recession fears are the alleged culprit. However, that contradicts the market narrative that hopes inflation is peaking and recession can be averted as China is easing its recent COVID-19 lockdown restrictions.

Meanwhile, the dollar positively correlates with Treasuries, which have risen since Friday. Usually, the greenback and Treasury yields move in tandem. So, we see here a second market anomaly.

Let's see what these contradictions look like on the chart.

Dollar Index Daily
Dollar Index Daily

The US currency has been trading within a pennant, a presumed continuation pattern. The expectation is that the price will break the range in the direction of its underlying trend after shorts have finished covering. However, the dollar fell to the lowest since June 16, below the range.

We are not quick to call it a blowout, which would mean that market dynamics should reverse pushing the dollar downward, as there was no decisive downside breakout. However, this weakness demonstrates weakness, both for the pattern as well as for the dollar. If we identify an obvious down move, we'll look at the May low for support. A breach of that level could spell out a Double Top. For now, we are still bullish as the uptrend is intact, especially after the dollar registered a new high on June 13.

All this demonstrates a market that is unsure how to proceed. So, how do we proceed? The following guidelines can help you determine the best course of action based on your risk aversion.

Trading Strategies

Conservative traders should wait for a trend reconciliation with a new high or a double top.

Moderate traders would risk a long position with an upside breakout or a short with a double top.

Aggressive traders could enter a long contrarian position, counting on the presumed inherent nature of the pennant and the bullish trend, especially from a risk-reward perspective, considering how close the price is to the bottom of the range. Here is a generic trade example:

Trade Sample - Aggressive Long Position:

  • Entry: 104.00
  • Stop-Loss: 103.75
  • Risk: 25 pips
  • Target: 108.00
  • Reward: 400 pips
  • Risk-Reward Ratio: 1:16

Note: This is a generic trade sample. Your chances will improve exponentially as your plans reflect your timing, budget, and temperament. For example, a trader can increase the stop loss to account for whipsaws but equally grow their exposure. Use our samples to practice, but develop your style. A trader can have a shorter target to increase the chances of cashing out sooner. Happy trading!

 
Chart Of The Day: How To Trade The U.S. Dollar In Today's Contradictory Market
 

Related Articles

Kenny Fisher
Pound Steady Ahead Of GDP By Kenny Fisher - Aug 11, 2022

The British pound is trading quietly today, after posting sharp gains on Wednesday. In the North American session, GBP/USD is trading at 1.2220, up 0.02% on the day.U.S. Inflation...

Chart Of The Day: How To Trade The U.S. Dollar In Today's Contradictory Market

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
patricio Silva
patricio Silva Jun 27, 2022 1:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
already stopped
patricio Silva
patricio Silva Jun 27, 2022 1:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
mr pinchas pinchas ni mim
Pinchas Cohen
Pinchas Cohen Jun 27, 2022 1:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
patricio Silva  "ni mim"?
Pinchas Cohen
Pinchas Cohen Jun 27, 2022 1:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
why "already?" how long did you expect it to take to be stopped if it went against the aggressive position?
Kevin Mojica
Kevin Mojica Jun 27, 2022 12:01PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
hello 👋
Kevin Mojica
Kevin Mojica Jun 27, 2022 12:01PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
hello
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email