The dollar rose on Monday, up as much as 0.25% at time of writing, though it has been fluctuating. It's currently trading at 96.220.
Just under 8,000 flights were cancelled globally over the Christmas holiday weekend, due to staffing shortages triggered by the spread of the Omicron variant, as well as, in some locations, inclement weather. An additional 1,639 flights have been cancelled so far on Monday, many in the US and China, causing investors to flee risk and seek safety in haven assets.
Investors bought Treasuries for a second day which helped boost the dollar. Will the greenback's upleg continue? We think so.
The USD rebound just happened to occur off the bottom of an Ascending Triangle. This pattern develops when buyers are more eager than sellers, accounting for the rising buyers' line while the sellers' line remains flat.
On Friday, dollar trading produced an Inverted Hammer, a pattern expected to be bullish though it requires confirmation. Today's rebound provides that confirmation.
Finally, if the price closes above Friday's intraday high, it will also complete an Evening Star—a three-day pattern demonstrating a bottom. However, given that the preceding decline was modest, the vested bullish interest of the Evening Star can also be expected to be humble.
Nevertheless, its location—at the bottom of the Ascending Triangle—may make the three-day pattern sufficiently significant to provide an upside breakout of the triangle. That signals a more meaningful implied target which could test the 98.00 levels.
The Ascending Triangle is a continuation pattern. The fact that the price crossed above the 200 WMA during the week ending Nov. 12 before entering the triangle lends weight to the outlook of an upside breakout.
Trading Strategies
Conservative traders should wait for the upside breakout before risking a long position.
Moderate traders would buy if the Evening Star completes, with today's price closing above Friday's intraday high and then retesting Friday's lows for an entry with less exposure.
Aggressive traders could buy according to a coherent trade plan. Here is an example:
Trade Sample
- Entry: 96.20
- Stop-Loss: 96.00
- Risk: 20 pips
- Target: 96.80
- Reward: 60 pips
- Risk-Reward Ratio: 1:3
Author's Note: We're not in the fortune-telling business. By definition, technical analysis weighs probabilities based on historical behavior. We are simply doing our best to gauge the current trajectory. However, that could change, so we try to roll with the punches without getting too hurt. Our generic sample is used merely to showcase the essential requirement of a coherent plan. You must learn how to customize plans according to your needs to incorporate your timing, budget and temperament. Trading is not about being right each time, rather it's about managing your luck to increase your odds for consistent positive returns overall. Use our samples to improve your planning skills, but don't hope for quick profits. If that's what you're after, this game isn't for you.