Is the US Dollar about to turn up?
Tomorrow sees the UK elections and the ECB announcement on what they intend to do (or not do) with their massive bond buying scheme. Just another day at the office? I don’t think so. The potential is very high for seeing some massive swings in stocks and currencies. Markets will get very emotional.
Bullish sentiment towards shares is still running at extremes with DSI bulls at 90% on the high-flying Nasdaq. Meanwhile, bearish sentiment towards the US dollar is at very low levels with DSI bulls around the 10% mark.
With such lop-sided sentiment, the scene is set for big counter-trend moves and forecasting their size is just about impossible.
This is the current position in the US Dollar
I have a lovely tramline pair with the market testing the lower line, which lies at the Fib 62% support of the previous wave up. There is a large potential momentum divergence at the wave C low. With wave C sporting a five down, the picture appears just about complete, providing we do not get a spike down and then a rapid recovery (always possible at such times).
The key level is to break above the minor high at the 97.50 level. If that occurs, I can see a move to at least the upper tramline in the 99 area with higher potential thereafter.
One of the ‘reasons’ the MSM are offering for the dollar weakness is the falling US Treasury yields as T-Bond prices rally (we are long). My analysis indicates the current bond rally has about run its course and will start to turn down sharply very soon. What will the dollar do then? It will light a rocket under it!
And that will get the hedge funds covering their shorts in droves. What a lovely sight!
And I am seeing some tremendous setups in several currency crosses.
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