The Dollar, Two Ways

I’ll admit… sometimes I just can’t make a decision.

I discovered the joy of veal while studying in Italy about 10 years ago. Ever since then, I become paralyzed when ordering this tender, buttery delight. I flip-flop between veal piccata and veal saltimbocca every time. Do I feel like the acidic, tangy piccata… or the salty, earthy saltimbocca…

Sometimes investors waffle too. But this doesn’t have to be a sign of weakness. The best traders in the world will tell you risk management is far more important than forecasting price direction. In fact, many traders purposely design alternative trades – one bullish and one bearish – letting the market’s invisible hand choose which side to take.

If done correctly, this is the trader’s equivalent of having one’s cake and eating it too… or having your veal prepared two ways. Right now, the U.S. dollar is on the menu…

The greenback has rallied 5% since the beginning of February and lost about 2% of that last week. And I believe the dollar will head higher over the next few weeks. I saw a strong clue of this in today’s candlestick pattern…

See larger image

The market opened last night (Sunday evening) at about 82.40. It immediately sold off well below 82. Interestingly, the decline was halted at exactly the 38.2% Fibonacci retracement level (circled in yellow).

Then, not only did the dollar regain its open price of 82.40, it went on to trade much higher, reaching nearly 83. This is a strong indication of sentiment – specifically that the bulls have wrestled control away from the bears.

That said, 83 seems to be a formidable resistance zone so we can’t rule a bearish trade on the dollar out.

Either way, the dollar will break out of the 82.50-83 consolidation range and a new trend will develop. Here’s how to make sure you’re on the right side when it does:

1) Go Long UUP – Buy on a breakout above $22.60. Set a profit target at $23.10 and a stop loss order at $22.40. If this stop loss order is triggered, move on to this bearish trade…
2) Go Short UUP – Sell short on a breakout below $22.40. Set a profit target at $22 and a stop loss order at $22.60.

Both the bullish and bearish trade scenarios offer favorable risk:reward ratios, so if the first trade is a loser and the second a winner we should still come out ahead.

But wait… what about Cyprus!? Will our dollar trade fall victim to the news cycle’s whipsaws?

Actually, I don’t think Cyprus is moving the dollar market right now. The dollar declined last week, when the Cyprus debacle “should have” driven safe-haven dollar buying. Then the dollar rallied early this morning after a deal was announced (which presumably should have reignited the risk on trade, and dollar selling… but didn’t).

Let’s keep the news chatter in the background (another strategy of successful traders) and let the dollar’s next break out speak for itself.

Harry Dent’s Most Disturbing Prediction in Years

Harry Dent, one of the most respected economists in the industry, has uncovered a disturbing market event that could soon devastate millions of investors. In short, he has undeniable proof that one of the market’s safest and most popular investments is about to get slaughtered… and it will have dire consequences for those who don’t prepare right away.

For full details on the event Harry’s dubbed as the “Safe-Asset Slaughter”… and to ensure you escape the coming carnage, I urge you to watch this special presentation.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.