Is The Trend Your Friend Or Fade The Break?

Is the Trend Your Friend or Fade the Break?



A basic, but essential judgment short-term participants must make is whether a particular market is trending or rangebound.  It informs the technical tools one uses and the tactics one employs. Often one's timeframe shapes one's answer.  The dollar has either approached or gone through what previously seemed like the lower end of a range.  Recognizing that there is no substitute for disciplined risk management, on balance, we are more inclined to see the dollar ranges hold and for it to return within them where the ranges have broken. 

Dollar Index:   The high for 2018 was set in the middle of December near 97.70, and it was sold to almost 95.00 on January 10.  It has fallen in seven of the nine weeks since the end of November.  The Dollar Index retested the lows after the FOMC meeting and recovered to close above 95.50 ahead of the weekend.   The Dollar Index has not traded below 95.00 since mid-October.  The technical indicators are mixed but not inspiring.  A convincing break of 95.00 would target 94.00-94.20.  

Euro:  The dovishness of the ECB briefly drove the euro through the bottom of its range at $1.13.  The Fed's dovishness a week later briefly lifted the euro through the top of its ranges at $1.15.  To make money in a range requires buying low and selling high and leaves one ill-prepared to profit from a break.  Alternatively, playing for a break has been frustrating for several months.   From May through September last year, the euro finished each month with a $1.16 handle.  It closed with a $1.13 handle in October in November, and  $1.14 in December and January. It is virtually unchanged since the end of the year.  The technical indicators are constructive, as they often are at the upper end of the range.  

Yen:  Since recovering from the flash crash at the start of the year, the dollar has traded between JPY108.00 and JPY110.00.  The Fed's dovishness pushed it away from its highs, in an outside session to a two-week low near JPY108.50.  It recovered back to JPY109.50 ahead of the weekend, after the strong jobs and ISM data. The dollar closed 2018 near JPY109.70.  The technical indicators are not encouraging, but a move above JPY110 would target a band of resistance from JPY110.85-JPY111.35.

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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