Dollar Index analysis towards NFP  


Why you should consider buying the Dollar this Friday

The markets reaction to yesterday’s FOMC statement was a calmer than I expected.

Although I didn’t expect any surprising news from November’s Fed meeting, I was expecting that a hawkish statement (as we got) will drive some correction moves to the sharp sell off that we saw in Dollar Index and the S&P 500 prior to the Wednesday’s meeting. My expectation was based on the Dollar’s and SPX’s price reaction to previous FOMC meetings that provided hawkish messages.

Despite the hawkish tone, the Fed’s message didn’t generate the expected correction moves in the Dollar and the S&P but their sell off was halted. Perhaps the buyers are looking for reasons to jump in – Such reason can come with good NFP numbers that will boost again the chances of December rate hike following the U.S elections.

Jobs report

As you can see below, despite the Fed’s confidence in the U.S job market, it is actually going nowhere:

U.S jobs numbers

U.S jobs numbers (www.tradingeconomics.com)

Since 2011 the Jobs market created numbers between 150-200K while the desired numbers are above 300K. In fact, since June’s surprising positive number (the one that boosted the December’s hike talks) the jobs numbers are in a downtrend:

U.S jobs numbers

U.S jobs numbers (www.tradingeconomics.com)

The market expects good number on Friday, 174k. Although it is way below the average of recent years (near 200k), it is still far better than last month’s 156k.

Considering the average jobs numbers, there’s definitely a chance for a positive surprise… or at least for a number that will meet the analysts forecast.

If the market will provide such positive numbers, that can boost that Dollar Index that sits on a daily support zone (and perhaps also stocks)

DXY analysis

In my Weekly Markets Analysis newsletters I mentioned that my analysis shows potential that  the Dollar Index (DXY) will reach 100$ before the next Fed meeting.

Although DXY’s price came really close to the completion of the bearish Bat pattern I was monitoring, it failed to reach there and started its bearish pullback a little early:

DXY analysis

Dollar Index – Correction following a daily Pinbar pattern

A daily bearish Pinbar and an overbought RSI provided the bears with a technical reason to strom on the tired Dollar Index and send it back to the 97$ support zone. Of course that some profit taking assisted the accelarated slide on the Dollar.

97$ is the current supoprt zone:

  • It is the bottom of a daily structure zone 97-98$
  • Its where the price meets the top of a small trading channel – Should act as support now.
  • 200 MA line (240 minutes chart)
  • Short term RSI oversold (240 minutes)
DXY analysis

Dollar Index – 240 minutes chart

We are starting to see some bullish reaction to 97$. We saw it yesterday before the U.S session close and we saw it today following the start of the European session.

Speculative bullish scenarios

In my analysis above I showed several elements that support potential bullish move in the Dollar Index towads NFP.

  • Daily support zone that includes structure and a trend line support.
  • Short term oversold conditions.
  • DXY didn’t reach its final target zone – 99.5-100$
  • Bullish reaction to 97$

There are two potentail bullish scenarios that I would like to share with you in this blog post:

DXY trading scenario

DXY – Short term trading scenario

The first sceanrio is a pullback scenario that suggests that DXY will climb to re-test the Fast MA line (near 98$) that should act as resistance now that the price broke below it.

This sceanrio counts on the trend line and the 50 days MA line to hold as support and keep the price above them.

DXY trading scenario

DXY – Completion of harmonic scenario

The second scenario suggests that DXY will eventually reach the completion zone of the bearish Bat pattern (near 99.5$).

This scenario counts on various supporting elements that has the potential to drive the Dollar higher:

  • Two trend lines
  • 3 Ma lines
  • 8 Fib correction level (to previous swing high)
  • Oversold RSI (lower time frames)

Both of the scenarios shown above provide a R/R that is better than 1.

Forex traders can use these bullish scenarios to find bearish opportunities in some of the Majors. For example, EURUSD reached the resistance zone I mentioned in this week’s newsletters – 1.11-1.12 – Potential Sell Zone for the Euro Bears.

Still you need to consider that taking a position on the Dollar few days before the elections is highly risky. My advice is that if you choose to try and trade one of these scenarios, focus on short term target zones and make sure you are using strict risk management measures.

Take the next step…

If you liked this analysis and you want to learn how find trading opportunities and turn them to actual trading plans, than I invite you to join my Elite Zone group. Elite Zone trading ideas generated more than 250 pips of profit so far this week (excluding today’s winners on the GBP).

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