The US Dollar has been on a wild ride this month; staging a big selloff over concerns over various US policies and the relative states of the economies of the G8 countries. Basis the US Dollar Index, the Dollar’s trend has been sideways for the past week. It has managed to not sell off in spite of comments from the PBOC Governor about creatingnew world reserve currency, and Treasury Secretary Geithner’s confusing reply to it. The Dollar’s strength in the face of this news was telling of a change in trend.
Below is the daily chart of the Dollar Index . The last week’s trade formed a pennant, which culminated in an inside/narrow range day yesterday-two of the indicators I use as breakout indicators. Once this pattern was identified, you could have used any number of points to get long for the breakout- the first two being yesterday’s high of 8473.5 or the upper line of the pennant at 8472.5.
The pennant led to a big rally.
On the flip side, the Euro Currency also had a breakotu setup today.It’s formation was of a small flat bottomed triangle. The conventional wisdom is that a flat bottom (or top) triangle tends to break out in the direction of the flat side. Yesterday’s trade (in the ellipse, had the inside/narrow range day breakout setup; potential breakout short sale points were yesterday’s low of 1.3493 or the bottom of the triangle at 1.3415.Below is the daily Trade or Fade report for the Euro-its breakout point coincided with the bottom of the triangle. If you are following trade or Fade, it has hit the first profit target at 1.3302.
The Euro had a good breakout setup.
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