This past week was pretty challenging when it came to figuring out how to position ourselves in relation to the dollar.

For USDX, the week prior saw a pretty solid bounce up off a support level around the 75 mark, and it was looking good for a bottom reversal call. Fast forward to late last week and price once again sagged.

Do you ever feel, well, flabbergasted at all the news and gossip offered up in the mainstream media about the US dollar (or any market for that matter)?

One day, it’s nothing but doom and gloom, with reports that some UN committee or other is proposing that the dollar be replaced as the world’s de facto reserve currency. Then the next, the buck is suddenly surging, gaining more than 400 pips against the Euro in just over a week (as
happened to the November 3rd low @ 1.4627).

So if the greenback is so sick, why the surge?

In this week’s presentation, we look at the Big Picture on the EUR/USD – anticipating a top of major significance (concurrent with a bottom on the US Dollar Index), and then confirming the trend reversal.  It was a very tricky week in terms of identifying the top in real time, and I’ll candidly admit that I was expecting price to drift just a wee bit higher than it did before a selloff commenced.  But, again, it was the Big Picture we really needed to keep in mind, and the fact that we were in the tail end of an Elliott 5^th wave at four different degrees of trend – Weekly, Daily, 4hr and 60m – told us to not be chasing this pair too much higher, and to be on guard for signs of a (quote) “sharp reversal”.

In your trading experience, is it enough to know what the trend is, or even how far it should go before reversing?

Chances are, you – just like every one of us – have at least once felt excited on realizing a major breakout or trending market was underway as expected. You jump in short on a big down move and price goes in your favor by 50, 100, 200 pips or more.  Then the next time you look at your dealing window – poof – it’s all gone and a stop has been triggered.

Back in August, we had been holding out the possibility of a US dollar bottom and concurrent top in EUR/USD.  It looked good for a short time, but then price went into yet another long, drawn-out corrective process.  When that became apparent, we immediately scaled back on our short-selling ambitions the Euro realizing that a correction resolves into the prior trend (which, since March, has been up, right in line with the bull-market rally in the Dow)