The US Dollar has been on an absolute tear lately. This is great as it has presented some extremely strong trends to trade. This is one of the reasons why our forex signal has been performing so well. We’re up a whopping 39% this month after gaining 23% in November.
In fact, this signal was launched 30 days ago tomorrow, which means we’re up 72% in a month’s time. That’s insane, and not sustainable. I’m writing this post to take a step back and think through my thoughts on what the next couple weeks may bring for the forex markets.
Things may become range bound
Perhaps the biggest beneficiary of the strong US Dollar since Donald Trump won the US Presidential election has been USDJPY. The pair just keeps grinding higher, with the latest boost coming off the FOMC interest rate hike last week.
So it makes sense to take a look at the USDJPY chart to judge the potential for a continuation of the trends we’ve been seeing. Here’s a look at the hourly chart:
Every time USDJPY has dipped below the 50-hour SMA since the election results, we’ve seen some extended consolidation. I’ve marked these three instances with blue rectangular boxes.
The first one lasted about four days, the second was a full seven days, and the last was just two days. We’re now trading below the 50-hour SMA once again, and I wouldn’t be surprised to see another period of consolidation.
How long would it last? That’s anyone’s guess.
But I would guess that it could be a longer one given Christmas is just around the corner and things will likely start quieting down. That said, liquidity will begin to thin out, and if we were to break higher (or lower), it could extend further than expected given lower liquidity.
One of the keys to successful forex trading is being able to adapt to changing market conditions. I’m currently of the opinion that the easy money we experienced last week with clearly defined (and strong) trends is taking a pause.
That means as a trader I’ll be focused more on smaller wins rather than trying to position for big gains. I’ll be looking to take profits faster than normal, and looking at any quick bursts of price action as opportunities to decrease my positions.
USDJPY remains my barometer
USDJPY is by far the strongest trending pair right now. So that’s what I’m watching for any indication that the trend is ready to resume, or we start seeing some extended USD weakness.
If USDJPY trades back above the 50-hour SMA I’ll feel confident that the uptrend is ready to extend.
But if the 200-hour SMA breaks, I’ll be prepared to commit to shorting the USD… however long that may last.
The key from now until the end of the year (at a minimum) is to stay nimble. If you’re a trend trader and not comfortable changing up your style quickly, it’s probably best to grab a carton of eggnog and take an extended holiday.
For those that can’t help but trade (your’s truly), stay alert. Take profits earlier than you would and don’t look for large moves… not yet at least.
Above all, enjoy the holiday. Enjoy your family. And enjoy the fact that we’re privileged enough to dabble in a globally traded currency market for fun.