Dollar Index - Back to the Throne - Or Not?
Updated
For a few weeks now, this bear flag has been forming on the Dollar Index/DXY, bouncing around between these 2 downwards channels.
The Dollar Index measures a basket of foreign currencies against that of the US Dollar - such as the Euro, Yen, British Pound and Canadian Dollar. The rise of a currency is typically associated with downwards movement in most equities, as more investors head to cash and cash equivalents, in fear of equities. The opposite is also true - when low interest rates are set, like this year because of economic contraction due to COVID-19, investors head to equities, wanting to get a larger return, despite the risk.
Both QQQ and SPY are at a trendline resistance. What is likely is that we stay flat/consolidate at this level and grind against the trendline, until we see a true bounce. Remember: Don't try to inverse the trend or time the top/bottom - if equities have been going up consistently since May, we must follow it. Like the famous economist John Maynard Keynes said, “the markets can remain irrational longer than you can remain solvent.” Too often I see ridiculous bearish behaviour, due to not being in the market at all and predicting what is the end of the world at SPY 40/50.
However, we must not foolishly blind ourselves into buying the dip every time - we must stay wary of a potential correction. I will explain what a potential larger-scale decline could look like. Personally, I would wait until we see a reversal signal happen. As the election nears, we should prepare for increased volatility. However, this does not mean panic selling! React accordingly to a Republican/Democratic victory - leave politics out of it.
This is my first post so please support me! Feel free to like, follow me for future ideas, share it. Please let me know if I did anything wrong in the comments below.
Stay safe out there! Don't fight the trend or time the top! Take risk accordingly. Good luck with your trading!
The Dollar Index measures a basket of foreign currencies against that of the US Dollar - such as the Euro, Yen, British Pound and Canadian Dollar. The rise of a currency is typically associated with downwards movement in most equities, as more investors head to cash and cash equivalents, in fear of equities. The opposite is also true - when low interest rates are set, like this year because of economic contraction due to COVID-19, investors head to equities, wanting to get a larger return, despite the risk.
Both QQQ and SPY are at a trendline resistance. What is likely is that we stay flat/consolidate at this level and grind against the trendline, until we see a true bounce. Remember: Don't try to inverse the trend or time the top/bottom - if equities have been going up consistently since May, we must follow it. Like the famous economist John Maynard Keynes said, “the markets can remain irrational longer than you can remain solvent.” Too often I see ridiculous bearish behaviour, due to not being in the market at all and predicting what is the end of the world at SPY 40/50.
However, we must not foolishly blind ourselves into buying the dip every time - we must stay wary of a potential correction. I will explain what a potential larger-scale decline could look like. Personally, I would wait until we see a reversal signal happen. As the election nears, we should prepare for increased volatility. However, this does not mean panic selling! React accordingly to a Republican/Democratic victory - leave politics out of it.
This is my first post so please support me! Feel free to like, follow me for future ideas, share it. Please let me know if I did anything wrong in the comments below.
Stay safe out there! Don't fight the trend or time the top! Take risk accordingly. Good luck with your trading!
Note
Update on our targets - looks like we pretty much tapped the 93 target and got rejected. Earlier today it looks like it was a pretty hard rejection but the indices bled all day, and didn't hold the lows. This is a pretty bullish sign to me. If we break through and close above 94 on the daily, I think we can head to 96 as that was the previous support. Let's see what happens next.Note
Looks like this is the 4th test of the 94 level...Equities have gone down quite a bit since my last update, reaching July levels now. Again, a possible rejection might be coming as we have seen. As we edge near the election, a break to the upside in DXY seems likely.
Note
Looks like we just touched the 94 level. If we want a solid confirmation for a trade/indicator, we must see the daily close over 94. It is common for these fast rises to drop quickly once it hits resistance!
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