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Wednesday, December 7, 2022

Chart Of The Day: Dollar Likely To Advance To 115

 

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The Federal Market Open Committee increased interest rates by 0.75% for the fourth straight time yesterday. This hike pushes the top of its target range to 4%, the highest since 2008. Therefore, traders raced into trading the dollar in an arbitrage-like fashion so they could reprice the market-implied peak in interest rates for 2023. I have previously warned readers to avoid the market herd that changes its opinion according to the short-term trend.

The US Dollar is penetrating the top of its falling wedge today, completing a continuation pattern, bullish in an uptrend.

Chart Of The Day: Dollar Likely To Advance To 115US Dollar Index Daily
The wedge is similar to a triangle pattern. However, while the triangle’s trend lines diverge the wedge’s trendlines move in the same direction. This subtle difference illustrates the vastly different motivations of traders, which is driving the dollar’s current range.

Note that both the highs and lows within the structure point downwards, demonstrating that sellers are in charge. However, given that the lows are not keeping up with the same rate of descent as the highs, traders begin to lose patience.

That is what happened on Oct. 21, when the price penetrated the pattern top. However, it closed lower, well within the range. If today’s trading remains above the pattern, it will show that bears are slipping. A decisive upside breakout will complete the pattern and put market forces back within the uptrend, ending the wedge’s temporary disruption.

Trading Strategies

Conservative traders should wait for the price to penetrate 114, then wait for a three-day filter to reduce the risk of a bull trap, during which the price remains above the pattern, then return and successfully to confirm the pattern’s completion, with at least one long, green candle. When that occurs they can risk a long position.

Moderate traders would be content with penetration above 113.50 and a two-day filter, then wait for a return move for the better price, if not for added confirmation.

Aggressive traders could buy after a close above the pattern.

Trade Samples – Long Positions

Aggressive

Entry: 113.00
Stop-Loss: 112.50
Risk: 50 pips
Target: 114.50
Reward: 150 pips
Risk-Reward Ratio: 1:3

Moderate

Entry: 112.50 (after penetrating 113.50, 2-day filter)
Stop-Loss: 112.00
Risk: 50 pips
Target: 114.50
Reward: 200 pips
Risk-Reward Ratio: 1:4

Conservative

Entry: 111.50 (after closing above 114, 3-day price filter)
Stop-Loss: 111.00
Risk: 50 pips
Target: 114.00
Reward: 250 pips
Risk-Reward Ratio: 1:5

Disclaimer: The author currently does not own any of the instruments mentioned in this article.

Source: Investing.com

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