The Dollar Index made an interim high when the market appreciated Janet Yellen's dovish statement following the March FOMC meeting. The market has consolidated over the last couple of months between the recent highs and the support that has built up around 93 in the Index. The Dollar's decline over the last couple of weeks has been bought by commercial traders. We sent a COT buy signal last night. It was based on these factors and triggered by an upturn in our proprietary short-term market momentum indicator.
The brief guidelines for this methodology are based on siding with the commercial traders' momentum and using short-term, speculatively driven counter moves as entry points. Fine tuning the entries allows us to trade comfortably using the weekly commitment of traders data. Last night's Dollar Index COT buy signal met all of these criteria.
Commercial traders have flocked to the buy side as the market has held above 93. Will this morning's rally start the next leg up, through the resistance?
I believe that a good portion of this morning's rally is based on speculative short covering along with commercial traders buying to goose the market above its recent downward channel. Clearly, the move is being spurred by the potential for higher domestic interest rates as Jerome Powell, Governor of the Federal Reserve suggests there could be two rate hikes this year rather one. The potential of some yield to be earned on cash along with the deteriorating Euro currency has also helped pull global traders into the Dollar.
Based on the market's recent actions and per our email to subscribers last night, we've bought the Dollar Index and placed a protective sell stop at the recent low of 93.30. This morning's move is testing the downward resistance. A close above the downward trend line confirms the change in direction.
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