Dollar’s correction phase nears?

I traded short AUDUSD and EURUSD. I lost on EURUSD, but I weighed much more on AUDUSD that was win, so I made a small profit (0.38%). I have to reflect on the bad $AUDUSD selling operation today though. If I kept the pos from 0.9110, I could have made 3.75% return.

Now I think it’s time to stop trading for a moment and think about the mid term outlook.

Dollar index. I can clearly count 5 wave structure of an impulse wave from the bottom. Dollar may extend another few days or even a week, but I am expecting a correction towards purple .II from here. The distance purple .I traveled was much farther than I had anticipated. This may mean that the dollar will appreciate so dear in the mid to long term despite the US budget deficit fear?

20100326-dx-daily

EURUSD 12 hours chart. It may go further down around 1.2800? Or 1.3265 (blue underlined 1) was acutally the end of black V and purple .I and EURUSD will be entering the corrective wave up?

20100326-eurusd-720

EURUSD 60min chart. I can clearly count 5 waves down to 1.3265. If it is the blue underlined 1, we should see purple A-B-C upwards to blue underlined 2. If an impulse wave will appear instead, I would expect a greater rebound of EURUSD towards 1.4000 (or even higher) in coming months!

20100326-eurusd-60min

Gold. My last trade (a couple weeks ago) was a loss. Gold is not quite ready to be launched yet. We may see rebound to $1145 in next weeks, but should be quiet over all.

20100326-xauusd-daily

Lastly, AUDUSD. In the mid term, I am still not sure if 0.94 in Nov ’09 was the peak of blue underlined b. I put the secondary scenario with parentheses in this weekly chart.
20100326-audusd-weekly

For now, I trade carefully with the first scenario.

Now the whole move down from 0.9250 looks like a leading diagonal. If my count is correct, we should see a very short rebound to 0.9175 before going down to 0.8950. The process most likely non-impulsive. So, it will be difficult to keep one’s faith in the position whether it’s long or short.

20100326-audusd-120min

US dollar strength: Mid and long terms outlook

Once in a while, it’s a good idea to step back and look at the chart in a greater scale. Now that we made a killing in selling EURUSD, it’s good time to stop trading, and check where we are.

The first chart we are looking is performance of 8 cross-usd currency from November 26, 2009. In other words how much each currency appreciated (depreciated) against US dollar.  Click on the chart for an enlarged image.

The reason why I took November 26, 2009 as the origin in this chart is that it is the bottom of US dollar index so far.

20100124_cross_usd_2month

As of January 20th, performance from the top is CADUSD, AUDUSD, GBPUSD, JPYUSD, NOKUSD, CHFUSD, SEKUSD, EURUSD, but they are all depreciating against US dollar in past 2 months. And as you could have well expected, Euro is sold badly, nearing 7% decline in 2 months.

My trading plan is focused around the US dollar strength this year, and especially I will focus on Euro weakness against US dollar.

Among the 8 cross-USD currencies in the first chart, all of them except AUD and NOK are used to calculate US Dollar Index. It is a weighted geometric mean of the six currencies, and in fact EURUSD is weighted 57.6 percent.

So it is very natural, US Dollar Index and EURUSD charts look almost symmetric:

20100124-dx-vs-eur-daily

It is good to have these images in mind when we construct trading plans even for the short term trading.

From the next chart, I will focus on EURUSD. First I show you the very long term: monthly chart.

20100124-eurusd-monthly

In this time span, it is very difficult to count Elliott waves because we have very few waves in the past that we can use as the reference. So, I am not sure at all whether my purple .1 and .2 or even black labels are correct. But I can be more confident about the blue underlined labels. So, if you look around the black 1, you will see blue underlined 1 to 5 is complete. It is likely, from this count, we are in some kind of corrective wave. And because the blue underlined a was so severe downtrend (2008 financial crisis), I would expect the current wave to be blue underlined c in a a-b-c- zigzag wave. In zigzag wave, the initial descent (blue underlined a) can be used as a reference to estimate how far c wave would go (blue arrow in the chart). The end of the arrow is pointing around 1.1380.

EURUSD went down badly since November 26 of last year, but it looks like we have just started out journey.

Lastly, let’s look at daily chart. (I changed the label notation slightly to be sync with my Elliott wave count of US dollar index)

20100124-eurusd-daily

While I won’t be surprised to see another push down towards 1.4000, I think the initial 5 waves descent of the EURUSD has ended. I often see 61.8% or even 78.6% retracement after any Wave 1, so EURUSD may rebound towards 1.4720 in February.

So my plan is not to trade until EURUSD will break the gray trend line resistance, and count the wave in shorter time span, and probably we have time to long EURUSD once or twice to make some money before the purple II finishes.

Elliott wave analysis of the week - December 18, 2009

“The big money is made by sitting, not thinking. Men who can both be right and sit tight are uncommon.” – Jesse Livermore

December 17 was my birthday, and I successfully “sat tight” from the night before, and won big. It was not only a profitable trading, but gave me a good lesson, and I did not have to pay the tuition.

I am done trading for the year, and the current trading method, started on August 10 of this year, made the fund grow by over 23% in 4 months. This number is the fund growth, and I am actually using further leverage. So, I made over 85% return in 4 months.

Now the expectation of earlier-than-thought FED’s rate hike is rising, and the dollar’s rebound is only getting clearer. The correction (Dollar index negative) is due any moment from here. After the correction, the dollar won’t be just rebounding but rising.
20091218-dx-daily

Euro is really smashed this week, but I’m anticipating further decline towards the low of September 1, 2009.
20091218-eurusd-180min

And here is what I anticipate on Aussie.
20091218-audusd-180min

Real time trading tweets

The plan in the article may get rejected any time, so please check out my tweets on Twitter.

Current risk exposure:

"","","","","$29,058.30","","","","","","","","","","","","","","","","","","","","41.95%","","","2.00%","","","","","","","","","","","","","","","","","","","","","","","","","","","",""
Rational Move always use stop loss orders, and this is the worse case potential loss over the capital for the currently open positions. This is unrealized loss is less or equal to the risk exposure.

Capital growth

From recent 100 trades (%) The growth right before the 1st trade is set to 0%.
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Drawdowns

From recent 100 trades (%)
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Total returns

Since inception
(Aug 10, 2009)
Year-to-date Quarter-to-date
0% 0% 0%
This is a normalized value: the return on each trade is normalized against the capital just before the trade execution. This way, it is eliminating the effect by the capital change from deposits and withdrawals. The calculation thus reflects the trading performance of each trade. The value does not contain unrealized profits and losses. RM's trading strategy never risks more than 5% of the present capital. Not including subtraction by tax.

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