Strong & Weak: US Debt Ceiling Paints USDOLLAR in Corner
Talking Points:
-Extreme SSI reading suggests further losses for USDOLLAR
-USDOLLAR carves bullish equal wave pattern
-Use breakout to determine which force wins and thus which direction to trade the Greenback
This week saw major emotions and anxiety increase as the United States government shutdown begins its second full week. There are technical indicators suggesting the USDOLLAR may continue its recent sell off. On the other hand, there is a bullish pattern suggesting the USDOLLAR could rally on a debt ceiling agreement.
This piece will guide you on some key levels to watch to see which pattern is playing out.
Forex Strategy: Matching Strong versus Weak
| Currency | Up Arrows | Down Arrows | Change From Last Week |
| 7 | 0 | No Change | |
| 6 | 1 | Higher 1 ranking | |
| 4 | 2 | Down 1 ranking | |
| 4 | 2 | Higher 1 ranking | |
| 2 | 4 | Down 2 rankings | |
| 2 | 4 | No Change | |
| 1 | 6 | Higher 1 ranking | |
| 0 | 7 | Down 1 ranking |
Chart created by DailyFX EDU Robert Warensjo
Using forex analysis, we find see in the chart above how the USD has been relatively weak against its other main counterparts. In fact, the USD has occupied one of the bottom 3 spots since September 22 Strong & Week report.
The biggest technical indicator suggesting the dollar sell off may continue is FXCM’s Speculative Sentiment Index (SSI).
FXCM’s Speculative Sentiment Index (SSI)
The SSI shows the majority of traders are currently long the USDOLLAR. SSI is a contrarian indicator which suggests the Dollar is likely to sustain additional losses. Since the majority of traders have already bought the Dollar, then they become a future pool of potential sellers when they decide to close out their trade. This emotion is likely accelerated if they are in a losing position.
Forex Education: USDOLLAR Equal Wave Pattern?
(Created using FXCM’s Marketscope 2.0 charts)
On the other hand, there is a bullish pattern displayed on the Dow Jones FXCM Dollar Index. In the chart above, wave c equals the length of wave at near the 10,453 price. With prices trading sideways for the past 3 weeks, perhaps the Dollar is trying to put in a bottom.
Additionally, the Relative Strength Index (RSI) is showing a sign of divergence which simply means the momentum to the downside is running out of fuel. Combined with the RSI divergence, we can time reversals using the equal wave pattern. This has the potential to be a powerful pattern if it develops. It is possible the whole pattern equal wave pattern is likely to be retraced toward 11,000 at some point in time in the future.