#USDx and Its Consequences

I have been reading all over the news, all over the Internet that the buck is doomed to fall, that it's of no use, that it will drop more... and so forth.

First of all, I tend no to listen to much of what I read and I try not to have any bias. None of my trading is based on bias but rather on probability and statistics. By those, I mean  measurable means that will enable probability evaluation while placing my stops, entering the market and exiting the market. Fortune telling doesn't earn me no money. However, it's a good excercise for the mind and for my TA skills. ;-)

However, good sense (not common sense) is to be taken rather than to go with the flow. The USD is still a strong currency. It was and most likely will ALWAYS be. Sometime or another, it was or/and will be a safe asset. I try to emphasize through  a comparison between Volkswagens and BMWs.

A few years ago Volkswagen decided to raise its prices in order to make a statement about the quality of its cars. However it may try, Volkswagen will always have a hard time 'proving' itself as a manufacturer of high quality cars. Now imagine the opposite. What if BMW lowered the prices of its cars? Most probably BMW would see its annual sales surge because people would be buying a high quality car for a lowered price. And at the end, when the consumers who bough the BMW will loose less money than the consumer that bought the Volkswagen, because the market will reajust (buy the used car) accordingly to the offer/demand which in the case of BMW, have a much smaller supply, but will have a greater demand due to its initial price offer.

Like never before the saying "Buy on weakness, sell on strength" has made more sense to me than now.

Leaving all the above aside, I continue to believe we have seen the bottom of the buck.

If you have a look at the 240/daily charts on the USDx you will see that price is inside a descending channel that extends from May 7, 2010 (upper TL). Price has failed to touch back, in sequence, the lower trend line. It also has formed an inverted H&S formation after the last bearish MACD divergence was satisfied @ 73.93. Multiple bullish MACD divergences point upwards with the initial target being 75.33. Another clear MACD bullish target will fill the 61.8 fib level on daily which stands for the 78.86 level.

Here are the charts:

The daily chart demonstrates the channel, the H&S formation as well as a much higher bullish MACD divergence target @ 81.33.

The 240 Chart demonstrates the different MACD divergence targets (white dotted lines) as well as a close-up on the H&S formation.

The daily and the weekly charts also show that USDx prices are into a consolidation formation. We can observe a triangle/wedge-like formation on both of these time frames. They both also have bullish MACD divergences. 

Therefore my charts are telling me that we may see a stronger USD rather sooner than later.

The consequence for all this is that we will see other majors such as GBPUSD, EURUSD and USDCHF for example lose ground to the dollar for the next few months. Cable, as usual, is pulling the herd already and the same is about to happen with other currencies. The same can be said about USDCAD.