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With all the talk of the US Federal Reserve “printing money” and despite the well documented financial woes of the United States, it has been interesting to see the US Dollar holding its ground so far in 2011.
At the end of 2010 I wrote in the Trading Tutors Newsletter that I was expecting the November 1 low on the US Dollar/Japanese Yen to hold and that we might see a rally in the US Dollar to kick us off into the new year.
Let’s have a look at a chart of the US Dollar against the Japanese Yen (FXUSJY in ProfitSource).
Chart 1
click to enlarge
We can see in Chart 1 above that the US Dollar made a low on November 1, 2010 and while it hasn’t rallied strongly out of this low, it hasn’t been able to go lower for three months now, despite the negative news.
In Chart 2 below, we can see that the bearish move from June 2007 to March 2008 has now repeated from the August 2008 run.
Chart 2
click to enlarge
In Chart 2, I have used the ABC Pressure Points tool from the Safety in the Market module in ProfitSource to compare the current run down to the previous run down. It is interesting that the current consolidation of the US Dollar is occurring around the 100% milestone of this previous range.
In Chart 3 we can also see that the US Dollar is at a major Double Bottom with its All Time Low against the Japanese Yen.
Chart 3
click to enlarge
Currently the US Dollar is making lower tops, but it is also making higher bottoms out of this November 1 low. This type of pattern is commonly known as a wedge or triangle formation, as shown in Chart 4 below.
Chart 4
click to enlarge
We’re now literally at the thin end of the wedge and I would expect to see this market break out of here within the next couple weeks. Given the bigger picture position of this market, I expect to see this market rally up out of here.
I still believe there are large falls ahead for the US Dollar, but as anyone who has studied Gann or Elliott Wave techniques will know, markets move in sections or waves, they don’t just go straight from a top to a bottom.
I see this move as a retracement from what Gann would call Section 2, or what Elliott would call a Wave 4 retracement.
If you have never traded currencies before, now is a great time to learn so that you can be ready for the next big section down in the US Dollar.
Be Prepared!
Mathew Barnes
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