Saturday May 2, 2015 - 10:34:25 GMT
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Dollar Longs Stopped Out
by John M. Bland
Dollar Upward Momentum Gone
Even though I sent a warning last week that the USD bull trend might be over, I was not expecting it to end so abruptly in the latest week.
Most professional traders tend to focus on the dollar relationship to the EUR because it is by far the dominant trading relationship. Many who use the dollar index as their measurement of dollar strength or weakness do not realize that given its weightings it amounts to a EURUSD index. So when I write about the dollar I usually am referring to its relationship to the Euro. When referring to trends, Its important to understand that forex trading is mostly leveraged trade, because of the risks in leveraged trade, those trades who survive tend to have a much shorter time frame than one tends to see with equity traders.
So What Happened?
Watch out whenever a trade gets too crowded. When trading, if you buy a currency, stock or whatever, you buy with the expectation that someone will buy it from you at a higher price. If "everyone" already owns that asset, you are more likely to encounter sellers rather than buyers at peak levels. The long dollar trade has been touted by everyone in the financial media, so it had become vulnerable to a correction. The catalyst for profit-taking has been soft U.S. data. This came to a head last week with much weaker than expected underlyling 1Q15 U.S. economic data and a better than expected performance in Eurozone data. As the EURUSD recovered, long dollar sell stops were triggered and then stops began to feed on themselves. Some now are starting to wonder if the dollar has seen its peak levels for the move. Keep an open mind, because, ss always future performance will depend on future data.
The upcoming week is an active one for data.
-- Monday, May 4 features the Markit final PMI data for those centers closed for the May Day holiday. The UK and Japan will be closed.
-- Tuesday May 5, the Reserve /Bank of Australia is expected to cut interest rates by 25bps to 2.00%. U.S. final Service PMIs are due as well.
-- Wednesday April 6, final Eurozone Service PMIs are a feature. U.S. ADP private Jobs data for April are also due.
-- Thursday May 7, UK National Elections will be held. The Session also sees Australia April employment data.
-- Friday May 8, the main feature will be U.S. and Canadian jobs data.
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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