In last week’s article I opined that the U.S. dollar will continue to surge while the Euro will collapse.
And sure enough, that’s exactly what happened.
The US dollar bull continued to charge higher and hit a six-month high against its major counterparts in the USDI (U.S. Dollar Index).
The dollar rally started with the breakout after the H-bottom I identified several weeks ago plus some key reversals. These combined to give rise to a very impressive dollar bull so far:
The mantra to keep in mind right now is: don’t stand in front of a raging bull market in USD. Even if we see a slowdown in the very short term, it’s likely to be nothing more than a “pause that refreshes” before the next leg of the dollar bull.
So what about the Euro?
Pitted against a strong dollar and buffeted by concerns over the unstable Italian government, the EURUSD (Euro against the U.S. dollar) fell to lows not seen since November, 2017. In the space of a few short weeks, EURUSD has fallen 900 pips from 1.2500 to its current level of 1.1665.
That’s worth $9,000 for every $1,000 at risk if you were to catch the whole move.
EURUSD is presently trading at the lower level of a bearish descending triangle price pattern on the monthly chart. Failure to hold at or near current levels could result in this pair making new 10-year lows.
We could see EURUSD under 1.03 if this happens.
But right now the price is at a key inflection point at the neckline of that triangle. We could see a final move up against the trendline of that triangle again.
And if you’re a contrarian bull here, it’s possible that EURUSD might reverse and build on what could be a triple bottom made over the last year. (To support this, there was an earlier historic uptrend that launched earlier than the July 2007 bar shown on this monthly chart.)
However, I’m with the bears on EURUSD. I think we’re most likely to see a rise no higher than the triangle trendline before another serious drop to what could ultimately be those 10 year lows.
The British pound isn’t faring much better against the dollar. GBPUSD has suffered two devastating months in a row for the bullish cause.
It started with last month’s key reversal where GBPUSD made a new high and then closed on the low. This month went no better and even broke the recent uptrend line that’s been in place since early 2017. I wouldn’t be looking to go long GBPUSD at any point in the near future.
NZDUSD (the New Zealand dollar against the US dollar) is also bearish.
Here we’re looking at a weekly chart with a double top and NZDUSD appears ready to make an assault on the 0.68 support line.
If that line fails to hold, we’ll see another sizeable downside move, possibly as low as 0.62 which we last saw in 2014.
There could very well be a bit of churn around this level before that neckline breaks, maybe even a short-lived rally. But the long term trend is down for NZDUSD.
Now for the sole exception to USD dominance right now…
… the Japanese yen (JPY).
As strong as the dollar is, the yen is even stronger. That’s why I’m short USDJPY (the dollar against the yen).
Let’s look at the monthly chart first:
Here we see a symmetrical triangle that’s been forming since 2015. The price has stayed within those trendlines for a long time.
And here’s the key point: the most recent month has shown us a reversal topping pattern despite all the dollar strength. I don’t think USDJPY is going to break out of that triangle on the upside.
Therefore USDJPY is only headed downward in the months to come.
On the weekly level, we see more support for this idea.
The dominant pattern from a few years back was a bearish head and shoulders. USDJPY
plunged from that pattern, came back to the neckline and then dropped again.
Now it’s poised to yet another time after hitting the trendline of the descending triangle pattern I’ve drawn for you here. In fact, there’s been an especially strong key reversal again, just like the last two time it began dropping.
USDJPY could rise a bit before dropping for good (all the way back down to the neckline and below. But any rises are good shorting opportunities and the long term USDJPY trend looks to be down.
I should also draw your attention to a couple of non-USD pairs.
There are two in particular that I feel offer some particularly good short opportunities.
EURGBP (Euro against the British pound) is the first one.
Over the last few weeks this pair has formed a very tight coil. It’s just like a spring all wound up and waiting to explode.
Given the EUR weakness we’re seeing, and the descending triangle that shows us EURGBP has been steadily weakening, I think the direction of that explosion is going to be downward.
It’s taking longer than I thought, but EURGBP is definitely looking to break down in the near future. Go short under the recent lows of that tight coil. I’ve put a green arrow there to show you a good potential short entry point.
Well, why not another short opportunity in the Euro?
Remember, when JPY is strong, that means any pair XXXJPY is going down if XXX is weaker than JPY. Any currency pair will drop if:
1) The first currency in XXXJPY is weak.
2) The second currency in XXXJPY is strong.
3) Both 1) and 2) happen together.
And since EUR is definitely weak right now, and JPY is strengthening against the board, we want to be looking at shorting EURJPY.
Right now EURJPY has just broken the neckline of a recent head and shoulders top. Any strength in this pair should be shorted, because this pair is likely to drop a long way as the momentum gathers on the short side.
So there we go: short pretty much anything against the dollar right now (especially EURUSD, GBPUSD and NZDUSD). Short USDJPY as the yen is currently even stronger than USD. And short the Euro too (especially EURUSD, EURGBP and EURJPY).
Trades like this are how we pile up the profits over the long run. Buy strength, short weakness and be patient.
This is how we made more than 9,000 pips as Pattern Traders last year, after all.
And how we’ve taken around 2,000 pips since April 22.
We patiently waited for — and then caught — the big moves based on patterns we saw in the charts.
To put that into perspective, remember that last year’s 9,000 pips is about $90,000 for every $1,000 at risk when trading one full lot.
So why not give yourself the best possible chance of grabbing some of those windfalls for yourself?
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