The US$ Top

The Entry Points

Trader Scott

There were a lot of incompetent buyers of the US$ right into the highs in the US$. I warned about it repeatedly, and that we would see an upthrust in the $, and suck in a lot of bulls. Remember all of the clowns who were proclaiming the “new Trump US$ bull market”? Well they’ve all disappeared, and so have the trading accounts of some of them. It was quite humorous watching some of their stupid comments right into the major resistance area which I was writing about to expect to see a much needed correction in the bull market. Corrections in bull markets are normal and needed. The stock market desperately needs one. Here are some quotes from a post a few months ago, warning that a $ selloff was normal, needed, and should be no surprise to anyone:

“So all of the people who did not even recognize that we were at a serious resistance area in the $, (and we needed to see a correction first, to setup a move to new highs above 104) now are claiming the $ has “topped”. Over the last several weeks, I have been adamant about 3 things. The $ has way too many brand new bulls, is at a serious resistance area, and needs to sell off first, to be able to get thru that serious resistance area. The sentiment in the $ and the stock market has been, “what can possibly go wrong”. And the sentiment in bonds and gold has been, “what can possibly go right”. So this selloff in the $ is exactly what it needed to do. The high in the $ for this move was on January 3rd, as can be seen in the chart showing the support and resistance zones, and the longer term chart, showing why I was targeting 103.50.  Why this “sudden” move lower should be a shock to anyone is baffling, as my posts have been saying for weeks. The most recent one was the day before the January 3rd high:”

“There is tremendous bullishness right now in the $ right as it’s sitting in a pretty big resistance zone. There is also alot of hope in the new Administration. There was alot of hope 16 years ago for the previous Republican Administration of George (Hanging Chad) Bush, but that didn’t stop the $ from putting in a major top. I would expect a similar situation early on with this President-elect. Gold will begin to “sniff out” a topping process in the $, and it will begin take pressure off of it. And there are situations coming up this year in Europe, where gold and the $ can rally together.” 

So now the $ selloff is doing its magic. The normal $ correction, which very few expected, has now morphed into a “US$ top”. And the “US$ top” will later be viewed as the “US$” bottom.

From Bloomberg:

Four months after the dawn of the Trump trade, currency investors worldwide are capitulating.

That’s the signal from Bank of America Corp.’s flow data, which blends positioning and sentiment surveys conducted with its hedge fund and real-money clients, and publicly available futures data. The bank’s takeaway is that bullish dollar positions put on after the election have completely disappeared.

“The dollar positions accumulated in the buildup and immediate aftermath of the U.S. election look to have been fully unwound,” Bank of America strategists led by Myria Kyriacou wrote in a research note. “Positioning will not be the main driver of the next broad dollar move.”

To Kyriacou and her colleagues, the good news is that there isn’t much bullish, or bearish, dollar positions to be unwound, so the next trend gets to start with a clean slate. That also means the U.S. currency, which has almost retraced the 7 percent rally since Donald Trump’s election victory, will be stuck in a range barring any concrete fiscal policy, the kind of game-changing announcement that investors have been waiting for since day one of his presidency.

“Positioning will not be an impediment in either direction,” Kyriacou wrote. “Our sentiment survey suggests that expectations remain high that tax reform will be passed this year, even as the hopes of progress before the summer recess appear to have collapsed.”