The Dow Jones FXCM Dollar Index (ticker: USdollar) continues to be whipped around on a daily basis as news stories from both sides of the Atlantic change the direction of trade in a matter of minutes. On the European side; the ongoing Greek saga, rising Italian concerns, general weakness on the EMU periphery and slowing growth. On the US side; the imminent debt ceiling deadline, threat of downgrades from Moody’s and possibility of QE3. As investors duke out which currency they believe is the weaker, or stronger, and trade remains choppy finding market direction can be increasingly difficult amid reversal and counter-reversal.
During such periods we find its best to take a step back and zoom out from hourly or daily charts and take a look at what is happening on the weekly and monthly charts, where intraday volatility is mitigated and a clearer picture usually emerges. This time is no different, the above weekly chart shows that the dollar index has been trading in a rough 9450-9700 range for the past 10-weeks and a breakout doesn’t look imminent in either direction. We have also added on the broken line to mark the extremes of the recent range and show that the index could break to 9350 or climb to 9770 and still be in a range bound style.
As such, when looking for trade direction take a slightly longer-term view than you normally would to try mitigate the intraday moves and if the index is nearing the bottom of the range perhaps take a shot at buying and the opposite for the reverse scenario. Try not to get bogged down in the intraday moves and take a backseat with a multi-day or multi-week position. If you feel that even this strategy is even too bold then never be afraid to take to the sidelines until trade calms down.
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