Category Archives: FOREX

Wasn’t The Dollar Supposed To RISE On A Rate Hike?

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The dollar has been one of the biggest contrarian trades I have seen in years.  Every time the market is so certain about the direction it will run, it does the exact opposite and often in extreme fashion.  In my last weekend update, I noted how we called the multi-year rally off the 2011 lows when the market was expecting the dollar to crash due to all the QE.  And, I also noted how the dollar has been moving down after the Fed has raised rates, despite the common expectations that the dollar should rise.

Some days, if you listen really closely, you can almost hear the dollar laughing as it moves “unexpectedly.”

The same has happened with the Chinese Yuan. Recently, China spent 1 trillion US Dollars (a quarter of their FX reserves) over the past 3 years in an attempt to prop up the Yuan. However, the Yuan still lost close to 14% of its value against the USD over this time period.  Moreover, our lead analyst of our Forex Service at Elliottwavetrader.net, Michael Golembesky, appropriately advised a short in this market despite the Chinese “intervention.”  In fact, Mike and I wrote several public articles on this potential trade.  And, as you know, he has been quite successful in that trade, even though most others in the market would not consider such a trade in the face of the unprecedented action by the Chinese government.

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Watch the USD/JPY

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Just a quick post before I head to bed – – the USD/JPY is key to watch. Weakness here will continue to be of aid to equity bears. I’ve also got a short on DXJ, which obviously also needs the Yen to play along. This has nothing to do with any of that, but I’ll just say in passing energy is increasingly my favorite sector, with more of my shorts concentrated in that zone. Anyway, here’s the USD/JPY:

0206-yen

US Dollar in Early Correction Phase?

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The U.S. Dollar Index (DXY) has violated its “Dec 14 FOMC low” at 100.73, and is in route to probe important support at its prior two major 2015 peaks at 100.47 (Dec 3, 2015) and at 100.39 (Mar 13, 2015).  If these levels are violated and sustained, this will argue for a deeper correction into the 99.00-98.40 area as a next immediate target zone.

Let’s notice the glaring weekly momentum divergence at the 2017 high compared with the price momentum confirmation that occurred at the March 2015 high.

The juxtaposition of the intermediate-term momentum gauges with the unconfirmed new-high price action is a powerful warning that the USD could be in the early phase of a major correction of its May 2011 to Jan 2017 Bull Market.

Mike Paulenoff is founder of MPTrader.com, where he provides live intraday analysis and trade alerts covering the equity, commodity, and currency markets.