On March 21, 2018 the FED increase their overnight interest rate by .25% to 1.50 – 1.75. This made the DXY, which is the US dollar index, to depreciate from 90.37 on March 20 to 39.40 on March 22. At the moment Tuesday, April 10, 2018, 6:05 EDT, the DXY is at 89.62, almost one whole point lower than before the FED interest rate decision. This is an indication for the time being, the DXY will have a higher probability of depreciation than appreciation. This is because even with an increase in the overnight interest rate, a fact that tends to appreciate the currency, it created the opposite - a depreciation in the US dollar. This pattern is expected for the next interest rate decisions by the FED if the FED keeps their three rate hikes for 2018 plan. The next FED interest rate decision is May first. This gives the month of April a high probability of US dollar to depreciate and because the previous FED interest rate decision created a depreciating signal there is a high probability the next interest rate decision would be the same. That is if the FED decides to increase their interest rate in May which they may not. Thus, creating another signal for depreciating US dollar. This type fundamental indication creates a depreciating US dollar trading strategy.

Security markets across the world have been in a correction. With the S&P 500 dropping from 2,762.13 on February 2, 2018 to 2,613.16 April 9, 2018. Also, The Nikkei 225 has drop significantly since the start of 2018 as well as FTSE 100. When a correction occurs the money from the stock markets tends to get converted to US dollar, which is seen as a safer asset than stock. The US dollar is also easier to convert to other asset in the world because of general acceptance by people. This are factors of appreciating US dollar, but the DXY and currency pairs like AUD/USD have not shown that.

For pairs like the AUD/USD a bull technical pattern is forming and fundamental indicators like no FED interest rate hike in April supports the upside pattern. The DXY has also been having trouble breaking the 90.00 mark and AUD/USD has created a channel seen bellow on the weekly AUD/USD. This would be a good point to enter a long position trade for AUD/USD, because there is a higher probability the AUD/USD would go up given the factors mention above.  

 

 

US DOLLAR

The US Dollar has depreciated since the last post. At the moment, Jan 29, 2018, 5:58 p.m. EST, DXY is at 89.37.

A few days ago from January 29 during Davos, the president of the US said "he expects a stronger dollar". Just because he said it doesn't make it true, but now there some perception the US economic policy has change to a appreciating dollar. Because of that fact, it would be difficult to try to predict the trend, thus increasing the probability of losses. Situation when a head of state of central back president talks about changing economic policies increases the risk. The price of the currency may shift. Because risk has increase, it would be a good idea to be off the markets until new clues emerges of where the price of currency pair may go. US State of the Union is tomorrow the January 30th where clues about future economic policy may be said. Also the FED is going to give their interest rates decision on the 31st. This two social factors could lead to more clues to where there the dollar is going to appreciate or depreciate.

The price of: currency, commodity, security, reflects social factors like: unemployment and central banks policy. The goal is to find patterns that match social factors: central bank policies, with trends on prices of currencies like EURUSD or prices of other assets. If done properly and having an understanding of risk, it could be profitable.

The US Dollar

The DXY, which is a standard measure of the $US, has been staying on the 100 mark for about two years. The FED changed its course of low interest rates and quantitative easing and the pattern of appreciation has stopped. The FED has introduced the next step of their economic plan which is to increase interest rates and getting rid of the mortgage loans they bought because of the 2008 financial crisis. An increase in interest rates usually appreciates the currency, but is not 100% or happening this time. Also, .25 increases from the FED still very low increments from normal standards before the 2008 crisis. With future expectation of more interest rates hike there is a high probability for the DXY to stay around the 100 mark.

The EURUSD has shown some technical resistance above the 1.0 mark. Fundamentals still point for the EURUSD to keep depreciating, but since the beginning of 2017 it hasn’t done it. Now the pair looks like it could break to the upside. If EURUSD appreciates with the FED increasing interest rates, there is a high probability the EURUSD will continue to appreciate. The ECB also has negative interest rates and they will increase in the future which supports the idea of an appreciation of EURUSD.

The next FED meeting is in the middle of June. On May 24 the FED would release their minutes and that would be a window on what the FED are planning to in the coming up months. This would also be a confirmation on whether the down patter would continue or a floor has been established. 

Don Melon Change

Don Melon Change

Trading analysis for January 2017

The DXY has been trading above the 100 since a few weeks before the FED interest rate hike in December. In the past days from Thursday, January 26, 2017, the DXY has corrected itself and found support at 100. The 100 support has been hit twice; once around December 2016 and a few days ago from January 26.  On Thursday, January 26, 2017 the DXY has bounce back from the 100 mark and the EURUSD hit a psychological resistance at 1.075, which is a good place to short the pair. Another reason 1.075 is a good place to short the EURUSD is: it hit the .50 Fibonacci mark from 1.00 to 1.15 which have shown support and resistance in the pass.  If EURUSD continues the depreciation pattern, there is a high probability EURUSD might hit 1.00. 1.00 would be a good place to close the trade. Other pairs like NZDUSD show the same resistance pattern. NZDUSD is trading around 0.72 at the moment. NZDUSD still has an uptrend pattern in the long run even thought for the short to medium term it shows a high probability of depreciation to 0.70 which it has shown support for the NZDUSD.

            The idea of commodity currencies appreciating as mention before and in other entries still stands and it has been withholding. This idea is another factor of going long on NZDUSD around the .70 mark.  This strategy is something to look at and it would consist of holding the trade for a long-term period. The long-term is consider to be one plus years and the strategy would take advantage of the higher over night interest rate the Reserve Bank of New Zeeland is giving.

Trading Analysis for the short term of 10/13/16

The dollar hasn’t been continuing with its depreciation pattern since the start of 2016. Basically, all 2016 the DXY has stay in the high nineties. There are many factors that may have contributed to a high dollar. One of them is the Brexit.

When the British left the European Economic Union, it created an exit of capital to a more secure heaven, in this case the dollar with the FED increasing the overnight interest rate. This idea could be one of the factors that may contribute to a high dollar.

Economists are still expecting inflation, the FED wants inflation, and the US dollar is expected to depreciate. This speculation is not set in stone. The dollar could not depreciate and inflation may not pick up, but the probability of that is smaller than inflation picking up, and the dollar depreciating. With this knowledge, it is useful to trade accordingly.

Positions across the board are being setting up. One example is the New Zealand Dollar against the United States Dollar. The New Zealand Dollar has been in an up pattern since September of 2015. In resents weeks, the New Zealand Dollar (NZD) has been depreciating against the dollar. The NZDUSD pair is about to hit a stablish resistance around .70. The pair could hit below .70 to .67 and be fluctuating around those prices. This trend is really fissile if inflation is expected to go higher, and the dollar depreciates.

Right now, it is advisable to stay off the markets until the FED increases its overnight interest rate which is expected in December. From there it is advisable to see whether the pattern of appreciation of NZD continues or goes the other way. If the pattern continues then it could be stablish that NZD may keep appreciated for a long time.

Among other currencies that may have a good setup trade are: Australian Dollar against the United States Dollar, the European Euro against the United States dollar, and the United States Dollar against the Canadian Dollar.