For the first time in 13 years (since 2003), the USD Index (DXY) broke above 100, and likely won’t stop climbing. Looking at the Weekly Chart, the DXY has triple-topped, gaining momentum and wiping out orders each time. Every time a level is touched, it is less likely to hold. I’m fairly certain 100 is about to become a floor, not a ceiling. This thought was leveraged this mornings as Yellen spoke before the Joint Economic Council in Washington, hinting again at a rise in interest rates “soon.” Why wouldn’t she? Equities hitting new highs, Dollar moving up, unemployment numbers slightly down, Treasury rates up, and she admitted inflation is up. A quarter-point rise before the end of the year (or beginning of next) is more likely than not.
The Casual Entry
The next resistance won’t be found until 106, and it’s a pretty clear road to it (well sort of, there should be bumps at 102 and 104). Two potential entry points. If the DXY breaches 100, I’d look for entry on a pullback to (or near) it, we’ll see where the levels lay themselves out over the next few weeks. See weekly chart below.
The Agressive Entry
Second, and far better entry point is played off the shorter-term chart, the 4 Hour. Three-Point Divergence in the direction of the trend. Expect a pullback to at least sub-99, or perhaps as low as 97. Both of these levels have multiple factors support their validity, including englufs on previous levels and Fib’s. A move from 97 to 106 is just over 9% gain, and I’d expect this to play out within the next few months.
Where Patience Pays Off
There is, of course, a third option, and that is ‘we remain range-bound’ between 92 and 100. See another look at the Weekly Chart below. Should both of the above options fail, hopefully you are humble enough to have stopped out at a small loss, and you wait for the pullback into the range. In this scenario, I would consider putting on a short position now, taking 1/3rd off for profit at 99, another 1/3rd off at 97, and holding the last third for a run down to 93. Hedge your bets on the short side, keep your stops tight while it dances in the range, and squeeze out a few percentage points before we possibly march north.