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Compelling Dollar Trades for the Long Term

Jay Norris

It is becoming more likely that the dollar has put in an important bottom against major currencies like the Japanese yen, thus opening the door for both long- and shorter-term dollar trade opportunities.

The US dollar index and many dollar-based currency pairs including USDJPY and USDCHF reached intermediate -term balance levels, which we see as buying areas on the charts (see below).

The USDJPY, in particular, reached support levels very quickly, which makes this week’s trading look all the more exciting.

Guest Commentary: Key Support Levels for USD/JPY

Compelling_Dollar_Trades_for_the_Long_Term_body_GuestCommentary_JNorris_June10A.png, Compelling Dollar Trades for the Long Term

What is so exciting going forward is not necessarily that this is likely a long-term bottom for the greenback—though we believe it is—but instead the multitude of potential short-term trade opportunities to be presented as a result.

If there is one characteristic we can count on when it comes to market movement, it is repetition. The impulsive/reactive cycle that defines market behavior is a condition the professionals count on. If the US dollar holds the support levels from Friday, the selling momentum dries up, and prices turn back higher, it becomes more likely that the dollar will resume a low-volatility, long-term rally.

If that occurs, not only can we consider positioning ourselves for a bullish longer-term dollar trade, we can also focus on taking advantage of the shorter-term rebalances that generally cost retail traders money.

Guest Commentary: Potential for a Long-Term Dollar Rally

Compelling_Dollar_Trades_for_the_Long_Term_body_GuestCommentary_JNorris_June10B.png, Compelling Dollar Trades for the Long Term

To take a page from my book, The Secret to Trading: Risk Tolerance Threshold Theory:

“…smaller players can win if they understand that while markets are driven by the cycle of hope and fear, lending them a reputation for unpredictability, their pattern and cycle can be quantified.”

Measuring pattern and direction are objective exercises, and once we learn how to do that and see how they reinforce the long-term trends, it will help give us the confidence needed to take the necessary risks as traders.

We look forward to the possibility of taking advantage of the back-and-forth nature of the markets—especially a long-term uptrend in the US dollar—for many months and years to come!

By Jay Norris, Director of Education, Trading University

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