Published On: Mon, Feb 13th, 2017

Breaking down the USD Index and how I am playing it


The diary for the start of the week lacks real economic releases. US president Donald Trump seems to have his back against the wall at the moment, so he may cool down on the tweets. Who knows? 

What we do know is that the US dollar is in a crucial area. We will continue to see choppy trading until this correction higher is complete. It’s always much harder to highlight a correction mode, but here is our outlook. 

Monthly – We are long-term bears after the AMR (acute monthly reversal candle) in January at the Fibonacci confluence area of 102.00 in the US dollar index. An upward correction has been seen in February. This is corrective. 

Source: Saxo Bank

Weekly – The reverse trendline support from the descending channel formation held well, and the index broke the sequence of six negative performances last week. However, 100.74-101.05 has been a strong area of resistance, and there is scope for downward pressure at the start of this week. Last week’s Marabuzo level is seen at 100.23 (support).

Source: Saxo Bank

Daily – We believe a bearish head and shoulders is forming, with an eventual move towards 101.60-102.00 forming the right shoulder. This move higher should be in three legs (corrective). 

Source: Saxo Bank

Intraday (six-hours) – Broke out of the wedge formation to the upside. The measured move target of 101.00 is now complete. This is also a congestion zone, and we look for the A-B leg to be complete now. A move lower towards support at 100.23 and 99.83 should be seen to complete B-C before buyers return. This could then be seen as a reverse head and shoulders to take the index higher once more.

Source: Saxo Bank

Intraday (one-hour) – Breaking the wedge to the downside. The first formidable barrier is the trend of higher lows at 100.43. With the 161.8% extension seen at 100.28, we will probably break and retest. 

Source: Saxo Bank

Remember, trains and tankers take time to turn and reverse. (three-point-turn)

I am playing this USD bear move through two majors, GBPUSD long and a USDCHF short. These are short-term trades and will be taken off when the USD reaches support 100.10-99.83.

Management and risk description


Entry: GBPUSD long at 1.2489

Stop: 1.2469

Target: 1.2600 (watching the USD index) 

Time horizon: this week 



Entry: USDCHF short at 1.0023

Stop: 1.0070

Target: 0.9963 (watching the USD and USDCHF channel base) 

Time horizon: this week 

— Edited by John Acher

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