USDX Index story is very interesting . The underlying factors that affect the dollar have a huge divergence so what can we make of this
Forex FACTORS: ( Note: there are other factors that do affect the USDX index and other correlations but are not critical to short-term trading)
- XAUUSD ( GOLD)
- XBRUSD (BRENT OIL) & XTIUSD (WTI OIL)
- Interest Rates for US, EU, UK, Japan
- US Treasury Yields for 2, 5, 10, 30 years
- EU & UK Bond yields
- EURUSD (Euro)
- GBPUSD (Pound)
- USDJPY (Yen)
- Stock Markets ( DOW, SP500, NASDAQ, NIKKEI, FTSE, DAX, EU )
- Massive Stimulus from Central Banks across the world ( Money Printing Press is widely open , the tap is flowing )
Home Work ? Take a look at the prices of each of above assets during the tops , bottoms and at resistance/support areas marked on the chart and see what exactly was going on. i will only talk about some of March - August events.
As of today 5th August , 2020
- Gold == US$ 2040 ( All time high)
- XBRUSD == US$ 44
- Interest rates in US & EU , UK, Japan at 0 or close to Zero
- US Treasury Yields are approaching Zero
- EU & UK sovereign Bond yields are Negative or near zero
- EURUSD , GBPUSD are shooting through the roof , USDJPY is collapsing as usual
- Stock Markets are approaching all time highs again after a sharp drop in March when COVID-19 pandemic started
- Massive Stimulus from Central Banks & Governments across the world is helping fuel the rapid stock market rallies around the world.
Since 2015 , USD index has been above 88.50 handle. Here are levels to watch
TOP Box range == 102 to 91.50 ( Medium to Strong Dollar (Anything above 100))
Inflection Point (Major Resistance/Support) == 88.50
BOTTOM Box range == 88 to 75 ( Weaker Dollar Area )
How are EU , UK and Japan fairing in terms of their Economies ?
Weak USD means technically EURUSD, GBPUSD, GOLD will always shoot up and USDJPY will collapse
US government does not want USD to be too weak and unstable since its the World Reserve Currency used in all SWIFT global/cross-border commercial transactions around the world. Anything that causes the world to loose confidence in USD is bad for US and business around the world. So what does US do about the USD ?
-- Open the USD Printing press for liquidity on the front end but start mopping the excess liquidity on the backend using various mechanisms to bring stability in USD instead of a free fall.
NOTE: China is also vying for a Super Power status ( Both Economic & Military ). Its a catch-22 for USD . Economically , China has so much influence on the Global economy and indirectly how the USD is viewed and used across the world.
Excuse me , Sir ? Do we now sell EURUSD & GBPUSD ? Frankly, YES for a long-term (1 to 3 months ) , YES for Short-term ( 1 to 8 Weeks ) and NO for day trading . we are at critical levels in which those assets will be very volatile on a daily basis until we have a clear trend.
Forex FACTORS: ( Note: there are other factors that do affect the USDX index and other correlations but are not critical to short-term trading)
- XAUUSD ( GOLD)
- XBRUSD (BRENT OIL) & XTIUSD (WTI OIL)
- Interest Rates for US, EU, UK, Japan
- US Treasury Yields for 2, 5, 10, 30 years
- EU & UK Bond yields
- EURUSD (Euro)
- GBPUSD (Pound)
- USDJPY (Yen)
- Stock Markets ( DOW, SP500, NASDAQ, NIKKEI, FTSE, DAX, EU )
- Massive Stimulus from Central Banks across the world ( Money Printing Press is widely open , the tap is flowing )
Home Work ? Take a look at the prices of each of above assets during the tops , bottoms and at resistance/support areas marked on the chart and see what exactly was going on. i will only talk about some of March - August events.
As of today 5th August , 2020
- Gold == US$ 2040 ( All time high)
- XBRUSD == US$ 44
- Interest rates in US & EU , UK, Japan at 0 or close to Zero
- US Treasury Yields are approaching Zero
- EU & UK sovereign Bond yields are Negative or near zero
- EURUSD , GBPUSD are shooting through the roof , USDJPY is collapsing as usual
- Stock Markets are approaching all time highs again after a sharp drop in March when COVID-19 pandemic started
- Massive Stimulus from Central Banks & Governments across the world is helping fuel the rapid stock market rallies around the world.
Since 2015 , USD index has been above 88.50 handle. Here are levels to watch
TOP Box range == 102 to 91.50 ( Medium to Strong Dollar (Anything above 100))
Inflection Point (Major Resistance/Support) == 88.50
BOTTOM Box range == 88 to 75 ( Weaker Dollar Area )
How are EU , UK and Japan fairing in terms of their Economies ?
Weak USD means technically EURUSD, GBPUSD, GOLD will always shoot up and USDJPY will collapse
US government does not want USD to be too weak and unstable since its the World Reserve Currency used in all SWIFT global/cross-border commercial transactions around the world. Anything that causes the world to loose confidence in USD is bad for US and business around the world. So what does US do about the USD ?
-- Open the USD Printing press for liquidity on the front end but start mopping the excess liquidity on the backend using various mechanisms to bring stability in USD instead of a free fall.
NOTE: China is also vying for a Super Power status ( Both Economic & Military ). Its a catch-22 for USD . Economically , China has so much influence on the Global economy and indirectly how the USD is viewed and used across the world.
Excuse me , Sir ? Do we now sell EURUSD & GBPUSD ? Frankly, YES for a long-term (1 to 3 months ) , YES for Short-term ( 1 to 8 Weeks ) and NO for day trading . we are at critical levels in which those assets will be very volatile on a daily basis until we have a clear trend.
Comment:
We have broken or spiked above 1.1910 on EURUSD in the last 5 weeks . Chance are that the rally might extend to 1.2530 before any any pullback . Note: The rally is fuelled by USD weakness not EURO strength