Hope you're all right!
Today I will talk about the fact that we have been predicting USD weakness for a long time and so this was no surprise to us that bad things are happening in America right now.
How have we been able to predict this? By scrolling on Facebook and reading all the articles with what is/will happen in the world? No! We focus on the only thing that exists and that is the technical analysis, reading the market! We read the health of a continent/country by analyzing the charts. I'm comparing the charts with the heartbeat of a certain continent/country, a currency will always reveal its health before 'heavy scenes' like in America right now (huge number of COVID-19 deaths, black lives matter etc.) all this believe it or not, is a consequence of the unhealthy condition of the DXY (USD) chart and therefore doesn't come as a surprise to us. We saw this coming, we prepared and not unimportantly, we capitalized on it.
The reason why we always focus on our technical analysis and not on the fundamental is the simple fact that news is very often manipulated. Take the example of Mr. Donald Trump, in some newspapers he is the absolute hero, in some newspapers he is the devil himself. What is the truth? You tell me.
We analyze this using the DXY chart, the DXY is in other words the strength and weakness of the USD against the other major pairs like EUR, NZD, AUD etc.
We will now go over the charts where I will show you how and why the USD has lost its strength so impulsive!
This is the Weekly chart of the DXY on 26/04/2020, the TFD members got this chart in their weekly Sunday-market breakdown and were able to take advantage of the USD weakness!
Here you can see the Weekly chart from the DXY. You can see how I draw the purple channel. The reason I drew is to show you that the USD bulls were getting weaker as the time goes by. Just before the ascending channel (marked pink) you can see a strong bullish push. The reason why I am telling that the USD bulls were getting weaker is due to the simple nature of the market. Strong bullish impulsive phase first (90% of the candles were blue) and after that bullish push you saw the corrective nature of the market (50% of the candles were blue, 50% of the candles were red), and it was moving with the trend (channel was moving slightly to the upside) this told me that the bulls were getting exhausted!
The second thing I've noticed on the Weekly chart was that we were trading at the top of the ascending channel. Every time we have touched this level we received some kind of impulse to the downside (marked pink)! This time was probably not going to be different, most of the times history repeats itself!
This is the Daily chart of the DXY on 26/04/2020.
I drew my Daily Fib from the Daily low (0.00 Fib) to the Daily institutional candle high (100.00 Fib). I was interested in the 61.80 Fib as this aligned very nicely with the top of the ascending trend line and also it got rejected once and that week it was rejecting for the second time of the 61.80 Fib, this was really showing me that the Bears were present in the market!
IMPORTANT: you can see our -27.00 Fib sitting a little bit above the 97.00 region. We have set our target level at 97.20 region!
This is the 4H chart of the DXY on 26/04/2020.
On the 4H- chart we could see something very interesting. Look at how we approached the Daily 61.80 level, pretty impulsive right (90% of the candles were blue)? So the bulls were still not completely tired yet, they still had some strength. But right now, the second time (marked pink) look how we are approaching that same level again, pretty corrective right (50% of the candles are blue, 50% of the candles were red)? Telling us that the bulls were tired and the bears could kick in any moment, not just at any moment but also aggressively as the bulls were finished!
We have forecasted this a while ago! Right now, let me ask you a question, do you see a certain pattern forming multiple times on the DXY chart?
Let's have a look at the Weekly chart again.
Clear Bullish impulse, followed by a correction with the trend (ascending channel). We expect a heavy move to the downside and reach the beginning of the correction in the mid-term future.
Let's have a look at the 4H again.
Clear Bullish impulse, followed by a correction with the trend (ascending channel). We expect a heavy move to the downside and reach the beginning of the correction in the short-term future.
You see how important it is to backtest your strategy? Without backtesting you will never see certain pairs forming again and again and again! The reason I have capitalized on the USD weakness is because I knew this pattern has a very high probability to drop heavily!
In June we have finally hit our forecasted region, 97.20! (little screenshot from our Discord channel).
This was the DXY chart when we have reached our target, the 97.20 region! As you can see it was very impulsive!
Now, the most important thing you have to remember from this blog! Focus on the technicals as they were already giving us signs to get involved in a selling position before all the crazy news from America came out!
I hope you have learned a lot and I hope you will learn something from it!
Think different, trade different!
The Forex Dictionary team