Chương 20 USDX: Rate Hikes Are Ending, Long in the Near Term and Short in the Long （7.12）
Fundamentals
During Wednesday's (July 12th) Asian session, the USDX declined with oscillation, and it is currently trading near 101.4. Recently, the downward movement of U.S. bond rates and the depreciation of the USD illustrates that, no matter how hawkish the stance taken by the Fed, the market will not refer to it as a guide to the trend, and interest rates will not trend upward. Now, the market is quietly waiting for the moment of downward movement. This situation has been repeated many times and eventually became an ingrained habit. Besides, it is clear that the time of a surging interest rate resulting from the Fed's hawkish statement is getting shorter every time. Fundamentally, it represents an ending of rate hikes. Technically, the rebound is getting smaller every time and the USDX tends downward. However, the USDX has experienced a consecutive decline for 5 days, and this decline has been deep enough. Since the interest rate hike has not yet landed, traders must be careful and don't keep an overly bearish view of the USD shortly. It is possible that the USD will rebound for a consolidation.
Today's focus: Investors should wait for the U.S. CPI for June, which will be announced this evening, to judge the Fed's following monetary policy. Moreover, the market widely expected that core CPI will grow 5% YoY, far exceeding the Fed's target of 2%. If the data is lower than expected, the USDX may descend to find support, if the data is higher than expected, the rate hike expectation will be strengthened again, and the USDX will rebound after a deep plunge last week.
Technical Analysis
Regarding the daily chart, a death cross appears again near the MACD, and the 5-day SMA crosses below the 10-day and 20-day SMAs, indicating that the bears dominate. Nonetheless, USD has been depreciating for 5 consecutive days, which was sufficient and technically, there is a demand for rebound recovery for oversold. Furthermore, USDX is now closed to the lower area of the descending channel near 100.7-101, where USD has gained support several times this year. It may not repeat the same easily, but a similar situation could happen. Therefore, it is better to keep a bearish view but not go short, and instead, try to go long with a small stop loss and small positions.
Trading plan for today: Try to buy lows after the USD drops. If the USDX plunges to 101 before the release of CPI, try to go long with small positions. For stop-loss, it is recommended to set it at 100.7, which is the lowest level this year, and take profits at 102 with breakeven positions. Meanwhile, the secondary target should be 102.5.
Trading Recommendations
Trading direction: Long
Entry price: 101.000
Target price: 102.500
Stop loss: 100.700
Support: 101.000/100.700
Resistance: 102.000/102.500
