Is US Dollar About To Blow The Mother 

Of It All ?

US Dollar has been caught within a range since February this year to current time. The market players have been waiting for some sign from the Feds that whether there will be a QE3.

 
From the bottom panel of the daily chart, the green color ADX line which is telling us whether there is a trend in the market. Here we find it has been falling or staying flat below its 20's (yellow horizontal line). This is confirming to us that this market has been quite 'dead" with no directional move. Another confirmation for such market behavior is both the D+ and D- (thin red and blue lines) have been below the 20's value. This kind of occurrence is quite rare.

At the 3rd panel from the top, the Bollinger Band (2 thick red lines) has begun to "squeeze"/tighten . This is another confirmation that the market is caught in a range.

All these "dead" signs (low / flat ADX and D+ & D- below 20's; Bollinger Band squeezing ) are telling us something BIG may be happening to this market soon. And the longer this range bounding drags, that "BIG" will  be those 'shock and awe" kind of explosive movement.

All the abovementioned indicators tell us whether there is a trend in the market, but they do not tell us which possible direction will the market be taking. So we would have to try to get hints from other indicators. At the moment, both the MACD (2nd panel from top) and the Stochastic (top panel) are negative and falling. This mean the bears are having the upper hand. But then if we take a look at the prices (Japanese candlesticks) , prices hardly collapse. This means the bears are selling halfheartedly because they are also worried about the Feds may not put out the QE3. But neither the bulls have the guts to start charging. They, too are worried about the Feds introducing the QE3. i.e. since February, both the bulls and bears dare not flex their muscle.

This is where my specialty comes into play. Please note USD has done a lower low between February and March, but the MACD (2nd top panel) troughs have failed to follow. Instead its trough is getting higher. This is a subtle sign that the bears are faking it and they have been discreetly backing off from their shorts positions. In term of Elliot Wave count (something that I am NOT very good at), this could be near the end of wave 2 correction, what will happen next should the mighty wave 3 up.

Meanwhile at the weekly chart, it is also confirming the lack of trend in the daily chart. The Stochastic (top panel)  is positive but the MACD (2nd panel from top) is negative. When if 2 indicators contradict each other, it is the ultimate confirmation that this market is "dead". Then at the 3rd panel, we see prices got caught inside the Bollinger Band (2 thick red color line) and it is as like the daily chart's version - it has begun to "squeeze"/tighten.

I get terribly excited whenever I see the Bollinger Band "squeezing". It is like I get squeezed by women.

At the bottom panel, the D+ (blue thin line) is above the D- (red thin line), this mean the bull is having a upper hand over the bears. And D- is below 20's (yellow horizontal line), this means the bears are not strong. The ADX (green thick line) has been falling since mid January, this is signifying the trend is very weak. Actually that is about the time when prices getting caught inside the Bollinger Band.


At the weekly chart, to catch the next big signal would be easier. All you have to watch which side the price breaks. i.e if price closes above top red thick line, it would mean the bulls are back. But if price closes below the bottom thick red line, it would mean the bears are gaining an upper hand.

So my strategy would be :- (1) since there is no trend in the market, either I would NOT trade or play small; (2) I would not get too much into the sell signals but instead pay more attention to the next buy signal. The next buy signal will come when the Stochastic turns around and go up again , same as the MACD's.  And pray hard for the bull will decide to ride the next buy signal and blow up like a volcano. This usually will happen when there is something really nasty happen to other major economy (Euroland or China), investors will rush back into US Dollars as the "safe haven".  Another reason for a strong US Dollar is that more statistics coming out recently are confirming the US economy is getting back on its feet.