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The US Dollar is an asset I have written extensively on. It is the currency to watch for geopolitical and macro trends. I have said in the past, that the real moves will be happening in the currency markets as we face the ramifications of central bank easing and money printing ( Fed printers going BRRRR). We have been in an environment, since last year really, where all these central banks have been attempting to weaken their currencies against the Dollar. A race to the bottom if you will. A weaker currency is favoured by the politicians because it helps boost exports, aid in debt payments, and creates inflation (which means more taxes). 

I tend to agree with Brent Johnson’s Dollar Milkshake theory. That there will be a rush into the US Dollar as things get worse. The Dollar will get a bid because it is the reserve currency and the US will protect this status with the military and the fact that international money will flow into US stocks because there is nowhere better to go. The US and the US Dollar looks the best…or as Martin Armstrong says it, the prettiest sister out of the three ugly sisters. 

Previously, I have spoken about why the Fed wanted to cut interest rates. One of the reasons was to attempt to weaken the Dollar. Going forward now, the Fed is in a position where if the Dollar does rally, they will not be able to cut interest rates any more to attempt to weaken it…unless they do follow the path of Europe and Japan and go negative. A stronger Dollar has the potential to wreak havoc on the world economy. It will break nations with large Dollar denominated debts, and no foreign reserves to contain it. We are talking about countries like Turkey and a few South American and Asian nations. The US Dollar is so strong against the Turkish Lira and Indian Rupee, that both nations made deals to buy oil from Iran because the Iranians take any currency besides the US Dollar for their Oil, thereby countering the PetroDollar system. If the Dollar does indeed strengthen, more countries will want to opt out on using the Dollar for energy payments…this could lead to another Plaza Accord with the world forcing the US to devalue the Dollar.

On the charts, I follow the DXY, which is the US Dollar Index. It is heavily skewed towards the Euro, which makes up 57.6% of the index. But we can use this to of course trade the most traded forex pair, the EURUSD as both charts are inversely correlated. 

Over on the Discord channel we have been watching the range on the DXY (featured picture above). On Friday, we almost got a breakdown below support, but had to wait until Monday for that confirmed close below. This eventual breakdown could have been predicted by analyzing the market structure on EURUSD and USDCAD as well as other Dollar pairs. So far the sell off has been strong. This comes from more US domestic uncertainties, primarily what is going on in the streets, and the possibility of martial law being imposed.

There is a lot of choppiness to the left of the chart, but I would watch the 97 zone for support. We still need to make a lower high swing here on the DXY which could mean either a pullback to the break down zone at 98.30 before selling off lower, or a slight pullback from here, or likely once we hit 97, before seeing sellers step in.

As mentioned earlier, EURUSD is the inverse correlated pair. When DXY moves up, EURUSD moves down and vice versa. This was a trade I covered over on Discord. The 1.10 zone on the daily being very important, and also having the nice chart set up showing us a bottoming and ending of a downtrend. Same sort of analysis applies, we have not yet even made a higher low swing in this uptrend. We are at a resistance zone, perhaps this is where we begin to see a pullback.

How did I play this? USDCAD. Also mentioned on the Discord channel. We were watching price range for the longest time and then the breakout occurred on Tuesday of last week. Unfortunately this pair did not move lower right away. Price ranged and kept retesting the breakout zone as resistance, which saw sellers keep stepping in. At the start of this week, we got a 4 hour break lower, which was a reentry signal. My target was 1.35, and that has been hit. What now? Expect one more lower high swing. Price pulling back before selling off lower to 1.33.

Once again, market structure provides valuable insight to the markets. Many people are occupied on news moving markets, but markets only move in three ways: uptrend, range and a downtrend. My job is the same: look for trends to lose steam and then watch for a potential reversal. This is why the charts I trade look the same. These markets move the same way and there is a pattern to them. 

Written By:

Vishal Toora

Vishal has been a student of the markets since 2012, having experience trading markets on a proprietary, boutique investment, and the retail level. His goal is to encourage others to take control of their financial future, and simplify the market with his market structure method. He spends his free time reading non-fiction, supporting Chelsea FC, and participating in too many nerdy things to list.

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