Dollar Update

The dollar has been trading in a range bound congestion pattern lately, which is frustrating because that type of action sends out a bunch false signals on my trend following system (like this post). That's just the name of the game when you're attempting to catch and ride trends...a bunch of small losses while waiting for the big gain. Here's an updated 4-hour chart of the Eur/Usd pair.As you can see from the chart, the pair is still approaching the upper regression line. I will be paying close attention over the next couple of days to see how it reacts to that level. There's a little bit of bearish chatter out there about how the dollar is heading lower and it might be completing a head and shoulders pattern and blah, blah, blah. I say that we have to take a wait and see approach and try to hold off on getting too bearish. Remember, the trend has been down and we don't want to go against the prevailing trend until a new trend is established.

One interesting thing that I've noticed is that the dollar has not reacted very negatively to some bearish readings on a couple of indicators. The article that I linked to above states that the Dollar Index looks "sickly" and the author points out a couple of indicator readings to back up the opinion. Here is my own chart of the Dollar Index:As you can see, both the RSI and the MACD are very bearish right now...the RSI is sloping down and the signal line on the MACD is below the red line, which indicates a sell. While these are bearish, the price action has not confirmed the readings...at least not confirming that a new trend is developing. In my experience, it is generally a bullish (or at least neutral) signal when the MACD is falling after a bearish cross (the blue circle) but the price stays bound in a range like it has over the last month. I believe that it's jumping the gun a little to proclaim that the dollar down trend is beginning...it might just be some healthy consolidation and possibly a good opportunity to buy the pullback. Of course, I could be wrong and if the price action signals a new trend by breaking out of the range to the downside, then I'll be looking to short. Like always, only time will tell.

Good luck out there.

TLT