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Hello and welcome to this final edition of the Safety in the Market monthly newsletter for 2010. It has been an interesting year for global markets, with equities providing some challenging times for trading while the US Dollar experienced somewhat of a roller coaster year.
We’ve been hearing for some time that the US Dollar is really going to struggle and lose a lot of value as the Federal Reserve in America continues to print money. Anyone listening to the news would expect that it is time to go out and short sell US Dollars today. I have a different view.
Let’s take a look at the chart of the US Dollar against the Japanese Yen (FXUSJY in ProfitSource).
Chart 1
click chart to enlarge
In Chart 1 above we can see that the US Dollar started the year buying 92 Japanese Yen, but at the time of writing this article (December 12, 2010) we can see that one US Dollar now only buys around 84 Japanese Yen.
While this has been a fall of around 10% over 2010 it is certainly nothing like the type of falls people have been expecting – not yet, anyway.
In Chart 2 below we can see that the US Dollar has fallen significantly from the June 22, 2007 high at 124.15, down to its current November 1, 2010 low at 80.22.
Chart 2
click chart to enlarge
This chart also shows that the US Dollar has repeated 100% of a major bear market range leading into that November 1, 2010 low.
If we take a look at an even bigger picture, we can see that this November low is also a Double Bottom with the All Time Low of 79.75, which was made on 19 April, 1995, as shown in Chart 3 below.
Chart 3
click chart to enlarge
In Chart 4 below, we can see that the US Dollar (not surprisingly) has begun a rally up from the November low and has currently retraced exactly 50% of that rally.
Chart 4
click chart to enlarge
The US Dollar rebounded strongly off the exact 50% price milestone, a good sign of strength. This is an example of a Ranges Resistance Card, which is covered in Section 11 of the Number One Trading Plan and also taught in more detail at our 3 Day Interactive Trading Workshops.
If the US Dollar can hold this 50% level and push above the November highs, then the US Dollar rally is on – for now – and I can see this currency rallying into the second quarter of next year at least. Prices to watch out for are simple – a Double Top with the 2010, 2009 or 2008 yearly tops could make for a great short setup.
However, if the November 2010 low is broken (keeping in mind it was a Double Bottom with the All Time Low of 79.75), we could see the US Dollar go into freefall. That low of 79.75 is very strong – in fact, students who have attended a Gann Mastery workshop with me would know that this low has called much of the market action since 1995 – and a breaking of this low would open the door for much lower prices in the US Dollar.
While I do expect the US Dollar to lose a lot of ground in the coming years, I do think it has a rally to undertake first. Once this rally is over, we may well see some of the best shorting opportunities in a currency for a long time.
2011 is a great time to take your trading skills and education to the next level, so that you are ready to jump on board this move if and when it happens. Ask yourself now where you would like to be in 12 months time, both financially and as a trader. Then ask what you need to do to make that happen.
I’d like to wish all our Safety in the Market students a Merry Christmas and a very Happy New Year, and an abundance of profits, peace, joy and happiness in 2011 and beyond.
Be Prepared!
Mathew Barnes
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