Everyone on Wall Street is short the dollar. The hedge funds are holding massive short positions in the buck. Humorously, their track record has not been that good the last couple years. Are you one of the lemmings proudly walking around the trading floor exclaiming to others that you are short the dollar just like all of them?
It is true that there is safety in numbers for teenage girls that want to go on dates, but in trading, there is no safety in numbers, typically you end up being one of the stupido's like everyone else. For near-term calls, when the crowd goes one way, it is typically the wrong way. That does not mean you are contrarian for the sake of being contrarian, quite the opposite. Use the chart divergences to sketch the true path of what people are doing rather than what their pie-holes are proclaiming. Study and figure out if the divergences on charts gel with the news and ongoing zeitgeist narratives.
The dollar daily chart is set up to bounce right now. What?! The dixie is down at 92.49 on the current print; what are you, blind, Keystone? The chorus sings in unison that the dollar will collapse into oblivion from here. Well, it may be true that Keystone sees like Mr Magoo, blind in one eye and can't see out of the other, but he sees the daily chart and it is in full-on positive divergence so price will go up in the daily time frame.
The 92.49 print is exactly on that green horizontal line marking the third trip to the lows. Even as price comes down this morning, the indicators will remain possie d. The oversold RSI and stoch's are agreeable to the recovery bounce. Ditto the falling wedge pattern that is bullish. The lower band is volated and price came up to the middle band but it was cheesy, so another trip to 93.60 may be in the cards. The upper band is in play at 94.87 and falling. The bands are squeezing in tight so the dollar is likely going to make a big move which creates exciting times.
Everybody and his bro are short the dollar. The lady at the coffee counter said she took her whole paycheck, and some government stimulus money, and went short the dollar. The janitor overheard the conversation and said he just took his entire life savings and went short the dollar. Stephen Roach, that used to run MS Asia division, proclaims a pending crash in the dollar. Roach thinks the dollar is toast. He throws fresh red meat to the dollar bears that completely fill the Colosseum to capacity these days. Everybody cheers dollar carnage and believes it will begin any minute.
With the tight bands, a huge move may be the upside as the shorts begin running for their lives. As the dollar keeps climbing higher, panic will set in and the shorts will be stomping on top of each other to cover and exit. Of course, the 99.9% of folks on Wall Street that are betting on the short side for the US dollar say the sharp price move is guaranteed to be down. What do you think? Tight standard deviation bands (pink arrows) mean a huge and fast price move is coming but it does not tell you direction. The May and July tight band squeezes were both down. Will the third be down again or are we do for an up?
The dollar weekly chart is setting up with positive divergence but not quite there. The RSI is flattening and you can see that it typically stays within the 30/70 boundaries and does not become oversold or overbot so the case can be made that it is bottomed. Clearly, the MACD line is weak and bleak. The other long and strong indicators (green lines) will conspire with the daily chart to provide that big pop coming on the daily basis. However, the MACD wants one more test of the price lows after that move higher occurs for a few days.
It gets more interesting. The stock market is at a significant top now due to the neggie d across all time frames and chart indicators for the major indexes, as well as the ongoing uber complacency. The dollar spiked wildly higher during the February/March crash, mainly in March, with stocks and gold tanking. It is reasonable to expect the same scenario now. Therefore, the weak and bleak MACD on the weekly may not matter. If the stock market begins tumbling lower, and the dollar bounces as per the daily chart, and the shorts start covering the buck like madmen, things could get out of hand quickly like earlier this year. The dollar may not want to come back down to satisfy the MACD on the weekly. Price would simply take off straight higher as the brown line shows.
The blue line shows the more expected path in normal markets. The dollar would pop now due to the daily chart possie d and the possie d on the weekly, then after a few days of upside, will roll back over to honor the weak MACD. When price comes back down to the lows, the MACD will go possie d, say a week or two out, and that seals the deal for the bottom in the dollar and the multi-week dollar move higher will begin.
Both of these scenarios describing the pending upside in the dollar are completely against the universal consensus on Wall Street that expects the dollar to continue lower from here. Who do you think is correct? All of Wall Street or good ole Keystone? The most likely outcome right now would be for a Feb-Mar redux with the dollar jumping higher and stocks and gold collapsing (now into September).
Remember, the dollar only needs a little bit of buoyancy because the mountain of shorts may begin panicking and once the short covering begins the dollar could take off higher like a rocket. Watch the euro that moves inversely. The euro is above 1.19 this morning so the dollar comes down to the lows discussed above. As the dollar climbs from here, you will see the euro move lower. Keystone has no trades on for the dollar right now and probably will not play it. If you want to play the above, buy the UUP ETF on the long side. Paraphrasing Mark Twain, 'rumors of the dollar's demise are greatly exaggerated'. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added 5:54 AM EST: USD, or DXY, the dixie, is printing at 92.54.
Note Added 6:15 AM EST: USD, or DXY, the dixie, is printing at 92.56. Whoopsies, daisies. The euro slips below 1.19 to 1.1898.
Note Added 6:59 AM EST: DXY 92.54. Euro 1.1903. S&P +7. VIX 21.28. Gold +0.9%. For today thus far, the dollar is lower so the euro is higher and futures are higher and gold is higher.
Note Added 8:40 AM EST: The euro pops to 1.1937 so the US dollar drops to 92.34 the LOD. Dollar bears are cheering proclaiming that the US dollar is about to collapse. Stocks pop on the weaker dollar the S&P futures are up +5. VIX 21.40. Both volatility and futures are higher so one of them is wrong. Gold +1.0%. Copper +0.6%..
Note Added 8:50 AM EST: Dixie is down to the 92.29 palindrome for another low. Euro 1.1941. Cover the children's eyes!.
Note Added 9:46 AM EST: The SPX prints a new all-time high at 3394.02. Wheeee! Whooopie! Every day is a party. And another. SPX 3394.22. Yee-haw. Whhheeee! Stocks never go down and only rally. Praise, Honor and Glory to the Fed Our Money God! VIX drops to 21.24 slightly negative on the day. Dollar drops to another LOD at 92.17 as the SPX prints the all-time high. The euro spikes to 1.1962. And another high at SPX 3395.06. Come on, you can do 3.4K! The hats arrived from the screen printer this morning and are sitting in two cardboard boxes on the trading floor. Buy! Buy! Buy! Let's pull out those SPX 3,400 hats! Whhheeeee! Whhooopie! Fed Chairman Powell plans to print money forever so skies are permanently blue with colorful rainbows, and unicorns too.
Note Added 9:57 AM EST: The bulls chase Uncle Buck into an alley way and are beating the heck out of him. Chairman Powell whacks Mr Dollar with a baseball bat, pointing the handle at him and telling him do not even think of getting back up. The dixie, DXY or USD, prints a LOD at 92.15. Check that. 92.14. Stocks, gold, silver, copper, commodities and multinationals celebrate the weaker dollar and praise Powell and the gang when they return inside the bar. Mr Dollar is bleeding, at 92.13, at a 2-year low, but swears that he will rise again, he slowly tries to push himself up. The VIX turns a hair positive so volatility and stocks are both higher, so one of them is wrong.
Note Added 5:38 PM EST: Wheeee! Whoopie! The SPX prints a new all-time high at 3395.06 and new all-time closing high at 3389.60. The bulls are reaching for the sky since tomorrow may never come. The dixie prints the low at 92.13. Mr Dollar pulls himself up and climbs on top of the dumpster to pull himself up into the first floor window where he can keep an eye on Powell and his henchmen at the bar. The dollar is currently printing at 92.32. Mr Dollar wants to keep climbing higher (due to the possie d on the daily) and get away from the Fed gang. The VIX drops to 21.61 so the stock market was correct in going up since volatility is down. Euro 1.1931.
Note Added Wednesday Evening, 8/19/20, at 6: 40 PM EST: DXY 93.00. Euro 1.1848. The euro loses one big figure; the dollar pops. The dollar receives lift from the possie d on the daily.
Note Added Thursday Morning, 8/20/20, at 5:07 AM EST: Euro 1.1836. DXY, or USD, the dollar, is up to 93.03.
Note Added Thursday Morning, 8/20/20, at 5:27 AM EST: S&P -15. VIX 24.07. Euro 1.1826. DXY 93.04.
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