The future of the Dollar - EllisonCapital
Updated
The dollar is very important to understand through 2024 because it is your primary market driver on dollar pairs with its position as the world reserve currency.
During times of economic global turmoil, even though the US economy may be facing weakness, if global economies are facing weakness then the dollar will still hold appeal from a market perspective as a safe haven currency and as the world reserve currency as it is still backed by the largest economy in the world. 90% of business transactions are held in the dollar and it's still the only currency that oil is denominated by.
Now when you look at the dollar you can see it had a very short downside at the start of the pandemic. Why? Obviously, interest rates were dropped to zero and the money supply was exponentially increased. This meant less demand for the dollar because all of the demand was in risk assets in the stock market. After all, the FED was pumping the market, meaning more supply of the dollar. But the price only pulled back into the support and demand zone at 90.
Then in late 2021s when we had Russia invading Ukraine, you started to see some more appeal in the dollar as a safe haven currency. But more importantly, in 2022 feds began the most aggressive rate hike cycle ever seen, this saw the dollar with excessive upside volatility.
This is dangerous as it creates a lot of negative implications for global debt obligations on other country's currency values and global business activity. When the dollar goes up too fast, it has a lot of downsides for other global countries. Hence during this period, we saw major countries such as China, Japan and the UK perform currency interventions because their currency is already devaluing on top of the dollar being so strong. Especially on the macro rate differential between the Bank of Japan and the Federal Reserve.
Nonetheless, we can see we had this large rally/ impulsive bullish moves/ new higher timeframe highs being printed that we haven't seen since the 2000s. So still maintaining a beautiful macro bullish structure from a technical perspective too, Now we've had this aggressive correction and pullback phase.
This is due to inflation starting to drop because of the Fed's front loading of rate hikes and inflation starting to come back into a tricky zone. The majority of rate hikes were priced in and the price seemed to be setting up for 2023, but that pullback is still a 50% correction of this overall rally from late 2021. It also is conveniently retesting that area we broke above.
Inflation is still seeing trouble at the 2% point and to maintain that the feds are going to keep rates up and if geopolitical tensions are going to continue to escalate on a global stand and we don't trade above the 101s we could easily see the dollar trending back to these highs. Just not as impulsive, but slowly and more steadily. We could easily see the dollar from a macro perspective going into the 120s. Why is this so important? Well if this occurs, especially going into 2024 and we don't see the dollar breaking below 101, US inflation will still have trouble hitting that precious 2% target they want so badly.
It's going to be a lot easier playing Eur/USD sells with this dollar bullishness.
Simply put on EUR/USD there will be less demand for the Euro versus the Dollar. If the EU can't trade back above 1.13, overall I'm going to be expecting the price to return back down to those parity points 1.0 and potentially lower in a slow and steady fashion.
During times of economic global turmoil, even though the US economy may be facing weakness, if global economies are facing weakness then the dollar will still hold appeal from a market perspective as a safe haven currency and as the world reserve currency as it is still backed by the largest economy in the world. 90% of business transactions are held in the dollar and it's still the only currency that oil is denominated by.
Now when you look at the dollar you can see it had a very short downside at the start of the pandemic. Why? Obviously, interest rates were dropped to zero and the money supply was exponentially increased. This meant less demand for the dollar because all of the demand was in risk assets in the stock market. After all, the FED was pumping the market, meaning more supply of the dollar. But the price only pulled back into the support and demand zone at 90.
Then in late 2021s when we had Russia invading Ukraine, you started to see some more appeal in the dollar as a safe haven currency. But more importantly, in 2022 feds began the most aggressive rate hike cycle ever seen, this saw the dollar with excessive upside volatility.
This is dangerous as it creates a lot of negative implications for global debt obligations on other country's currency values and global business activity. When the dollar goes up too fast, it has a lot of downsides for other global countries. Hence during this period, we saw major countries such as China, Japan and the UK perform currency interventions because their currency is already devaluing on top of the dollar being so strong. Especially on the macro rate differential between the Bank of Japan and the Federal Reserve.
Nonetheless, we can see we had this large rally/ impulsive bullish moves/ new higher timeframe highs being printed that we haven't seen since the 2000s. So still maintaining a beautiful macro bullish structure from a technical perspective too, Now we've had this aggressive correction and pullback phase.
This is due to inflation starting to drop because of the Fed's front loading of rate hikes and inflation starting to come back into a tricky zone. The majority of rate hikes were priced in and the price seemed to be setting up for 2023, but that pullback is still a 50% correction of this overall rally from late 2021. It also is conveniently retesting that area we broke above.
Inflation is still seeing trouble at the 2% point and to maintain that the feds are going to keep rates up and if geopolitical tensions are going to continue to escalate on a global stand and we don't trade above the 101s we could easily see the dollar trending back to these highs. Just not as impulsive, but slowly and more steadily. We could easily see the dollar from a macro perspective going into the 120s. Why is this so important? Well if this occurs, especially going into 2024 and we don't see the dollar breaking below 101, US inflation will still have trouble hitting that precious 2% target they want so badly.
It's going to be a lot easier playing Eur/USD sells with this dollar bullishness.
Simply put on EUR/USD there will be less demand for the Euro versus the Dollar. If the EU can't trade back above 1.13, overall I'm going to be expecting the price to return back down to those parity points 1.0 and potentially lower in a slow and steady fashion.
Note
Just adding to this idea, now almost 3 weeks after posting.
It looks like the Dollar is in full swing and actually gaining faster than I predicted.
Note
With large bear candles forming and higher timeframe structure being broken, we can now confidently look for EUR/USD sells on the lower time frame.
I will be looking for any pullbacks to 1.056 or even a larger pullback to 1.065.
My long term target is parity on EUR/USD.
Note
Note
Price is rejecting at 1.056 just as I predicted in my previous analysis.I will be looking for any selling opportunities from here.
Note
Sell idea on EURUSD
Note
Alternatively, if the price breaks the high here I will wait for other set ups.Note
As we approach the price sensitivity area at around 1.064, wait for confirmations before entering a trade.
Note
Here's the entry I took yesterday morning (with proof).
I watched the 5m timeframe for an entry following the bearish rejection overnight and took my trade when the London open's bullish move got completely engulfed. It was a simple tell and I only risked half a percent of my account on the trade.
Currently, it's running at 1:5rr, the SL is at breakeven and I haven't taken any profit.
Note
A trade could be taken here this morning if we see a change of structure, or if we see a larger pullback to the 1.0525 price level.
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