Short-term trends for the US dollar and related markets


Jason Sen

Since the end of January I have been trying to figure out if the US dollar is going to continue lower in its bear trend or whether it can reverse and resume the much longer-term bull trend. Looking at the four-hour chart for the US Dollar Index it is clear to see why I have been whipsawed.

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After a slide into the end of January, the index managed a bounce in early February and has been in a clear sideways trend for the last month. In fact, throughout March so far we have been in a narrowing range. The moving averages are clearly helping to confirm this trend.

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It’s no surprise therefore to see EUR/USD in a similar sideways trend. Again we’ve seen a much narrower range in the last week or two, which has led to the formation of a triangle. A breakout of the triangle is imminent but it looks like we need a breakout of the near 400-pip, two-month range of 1.2170-1.2555 for a longer-term trend to develop.

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The monthly chart above indicates to me that the breakout is more likely to be to the downside. We topped exactly several longer-term Fibonacci resistance levels, coupled with both the 100 and 200-month moving averages. Note last month’s negative candle for confirmation.

The four-hour chart for USD/JPY also shows a clear sideways channel as we top at the upper trendline this week. Again, sideways moving averages reinforce the message.

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No prizes for guessing the short-term trend for gold and silver then. The four-hour chart for gold below shows a clear sideways trend for the year so far with significantly narrowing ranges this month. Even the breakout of what could be described as a triangle has failed to trigger a move in anywhere but a sideways direction.

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The path of least resistance for gold on the monthly chart certainly looks to be the downside. But we will have to be very patient while we wait for a breakout in either direction.

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The short-term four-hour chart for spot silver has been in a narrow sideways channel for over a month. It has ranged from just below $17 down to $16.15.

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The daily chart for silver shows hope that we will get a decent breakout from the one-month triangle. The path of least resistance, to me, looks to be to the downside as we hold below all moving averages.

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USD/CAD has been trending sideways, albeit in quite a wide range for eight months. Note the potential double top as we test important 500-day moving average resistance just below 1.3000 (the green line). Here even the daily moving averages have flattened out.

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With EUR/USD and USD/JPY trending sideways in recent weeks, it is not a huge surprise to see EUR/JPY following a similar path of course. I had got excited about the potential inverse head-and-shoulders pattern in the four-hour chart below. However, this has failed as we held below the neckline after a false breakout. More sideways action is likely therefore!

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Swing trade opportunities are always much harder in such an environment of course. If you want to make money you are going to have to spend time in front of the screen, actively trading in and out of the short-term levels, taking a quick turn when you see a profit.

Jason Sen

Technical Analyst & Trader

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