Less than two weeks ago, we made a call about the US dollar heading into a correction. Now that it's in process, we believe, we're going to say that after the dollar reaches the target we suggested, it will set up for a potential rebound.
Of course, we don't know the future so we can't say with full certainty that the dollar will rise again. However, we strongly believe that will be the case.
Conversely, analysts at UBS Wealth Management think the greenback acceleration has run its course, even as the USD nears a 20-year high. They argue that investors have already priced in both QT and higher interest rates. UBS also notes that other central banks are leveling the playing field by raising rates too.
But then UBS also made the point that the dollar has already exceeded their expectations which had only guided for short-term strength.
Given that final statement, if the bank admits it was caught by surprise, we'd ask why that upside surprise couldn't continue as per our own forecast for a rising dollar ahead?
After the US currency fell below the May 4 low, we thought it would go lower—and it did. The trading action since then follows a bottoming pattern. As such, we're preparing for a return to the US currency's long-term uptrend.
But suppose the dollar continues its decline? Should that occur we still believe it will ultimately turn around and accelerate above the neckline, in which case it will have completed an hourly H&S bottom.
Nonetheless, while the Dollar Index is within the Rising Channel, it will climb, achieving similar results.
Trading Strategies
Conservative traders should wait for the price to climb above 103, then show signs of accumulation, before attempting to buy the dollar.
Moderate traders would buy on the return-move after the greenback traded above the trendline connecting the highs since May 23.
Aggressive traders could buy the dip by the May 31 highs and channel bottom.
Trade Sample – Aggressive Long Position
- Entry: 102.20
- Stop-Loss: 102.00
- Risk: 20 pips
- Target: 103.20
- Reward: 100 pips
- Risk-Reward Ratio: 1:5
