|
There has been a lot of talk about the high prices of gold and oil in recent times, but most of the major currencies are also trading at or near record levels. Currency and Commodity prices are generally quoted in US Dollars, so as we see Gold, Oil, the Euro, the Swiss Franc and the Australian Dollar all skyrocketing, we can also see that the US Dollar is falling in value.
Chart 1 below shows the price action of the US Dollar Index, which measures the performance of the US Dollar against a basket of major currencies.
Chart 1
click chart for more detail
We can see that the US Dollar has been in a steady down trend for the last year, and has recently taken out its November lows. When we see a chart pattern like this, we should be able to identify that the trend is down, and therefore look to trade with that trend.
Once we are trading with the trend, our next step is to identify how far we think this market can go, with regards to both time and price. Chart 2 is a monthly chart of the US Dollar Index, showing us over 20 years of price action.
Chart 2
click chart for more detail
Chart 2 shows us that the current down trend is part of an overall downward move that started back in 2001. It also shows us that the US Dollar is currently at its lowest levels for more than 20 years, with no sign of support in sight. The 1992 low was the last level of support we could look at, so from here on, we need to watch the ranges the market is making to the downside, and let them tell the story.
As the US Dollar has fallen to new lows, the Euro (EC-SpotV in ProfitSource) has broken through to new highs in the last week, pushing up through the important psychological level of 1.50. Chart 3 below shows the position of the Euro.
Chart 3
click chart for more detail
W.D. Gann talks about buying when old tops are crossed, and selling when old bottoms are broken, and those who did so here would have been well rewarded. Those with Safety in the Market’s Number One Trading Plan could have taken an intra day entry on February 26, when the market started lower, but turned up during the European session, giving us an outside continuation entry.
For those who have missed the initial run, there is no sense in just jumping in blindly now. The best thing to do is to wait for a retracement, and to trade the next higher bottom. If you look back over the history of the Euro, you will have a little bit of an idea of the kinds of scenarios we could be expecting after new highs are made.
Be Prepared!
Mathew Barnes
|