by Poly, Zentrader
The dollar has made a Day 16 high which guarantees a Right Translated Cycle. Of course, this is bullish action, especially when viewed in isolation. But what we have driving the currency market here is the Euro correcting into an ICL after what was a very long and sustained IC rally.
Mario Draghi and the ECB will announce their policy response this week to what has become a rapidly slowing inflation outlook. The expectation is that they will lower rates to stimulate growth and lower the Euro. This in theory should drive the dollar higher, but as the Euro is oversold already, we could be in for a case of the “news being priced in”. Based on the fact that the Dollar is overbought and due a Cycle high, it looks as if the reaction to the ECB might take many by surprise and instead be (at least short-term) bullish for the Euro. This should help to drive the dollar into a shallow DCL, temporary relieving the Euro of its oversold status, before the Euro falls again into a deeper ICL during the early summer.
Editor’s note: This was written Wednesday (04 June) before the ECB announced its new negative interest rate policy for reserves and lowered other rates. As the author suggested the dollar index did indeed decline on Thursday after the announcement, hitting a low of 80.33 (compared to the low of 60.20 suggested by the author) but has not rebounded significantly though Friday’s trading, closing at 80.43. Watch the trading this week to see if the rebound expected (above 81) materializes.
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