The US dollar rolled over during the trading session on Thursday, falling as low as the 113.25 handle before bouncing significantly. I think that the 113 level as massive support, and I believe that we will eventually rally to the upside, perhaps trying to reach towards the 114.50 level again. However, this is a likely volatile market, and it also will take several attempts to finally break out above the 114.50 level, as that resistance barrier extends to at least the 115 handle. If we were to break out above that level, then the market is free to go much higher, perhaps reaching towards the 118 handle after that. Overall, the market should continue to favor the US dollar, because of the interest rate differential widening between the United States and Japan.
Ultimately, I believe that buying on the dips continues to be the best way to deal with this market, but I would also do it in small increments, trying to build a large position for the attempt a breakout. Because if we can get that breakout, this could be more of a longer-term investment than anything else, and if you can build your position slowly, and deal with the volatility leading to the breakout, you can benefit from hanging on to the position. The recent action, over the last several months, is very similar to what we saw in the 1990s when this market turned around and finally went higher again. I think we are trying to change the overall trend, but this pair tends to be so volatile that it will shake a lot of people out in the process. If we do break down below the 113 handle, I think we then will find even more support at 112. I am bullish, but I’m also realistic, recognizing that it’s going to take a lot of work to go higher from here.
Written by FX Empire