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If I am buying or selling anything against or with the dollar. I always change the DXY chart. Here is the daily chart, this chart is a mixed bag of currencies that show the strength (or weakness) of the dollar overall. There are 6 currencies from 22 countries in the basket so it is a really good indicator.
- Euro (EUR)
- Yen (JPY)
- Pound (GBP)
- Canadian dollar (CAD)
- Krona (SEK)
- Franc (CHF)
Here is the daily chart for the Dollar Index this morning. Over the last few days it has turned down. Could this be the top of a bearish trend? In fact it does tell me NOT to buy the dollar at this time and look for a sell.
Even then I am cautious. Risk reward is so important, why would I risk 55 pips for a possible 25 pip gain! Madness.
Gold however is more interesting. The main reason is that head and shoulders formation. The dollar index says we are going bearish dollar, the head and shoulders has bounced AGAIN of resistance at 1265.96 – yes it’s a bearish trend (a long one) but we could look at ranging up to 1.306 then 1.347 in extension. If we were continuing the trend I would have expected a drop below 1.265.96, not ANOTHER bounce. Is this a bull trap? Who know’s but a good trade set up where we have the dollar index suggesting shorting the dollar and the repeated bounce off the resistance at 1.265.96.
From what I’ve said here you should be able to work out the stop and the trade. If we break 1.347 bullish we could be going up on a new upward trend so a nice big trailing stop would be great, measure the distance of the last trend and go for that as your stop.