The US Dollar is in an interesting spot at the moment. Bears point to massive money printing to justify its continued decline. Bulls cite its oversold conditions and technical support to defend a move higher from here. In our view, both groups will be right – it just depends on the timeframe. Let’s look at the recent sentiment data on Euro Futures to show you what we mean.
Euro Futures closed at 80% Bulls on Friday after losing 0.8% on the day – those futures are also down 11% Bulls from the close two days prior. To get a sense of what may happen next, we applied the following filter to the sentiment data:
- DSI = Close between 75-85% Bulls
- One-Day Price Change = Loss between 0.6-1.0%
- Two-Day Sentiment Change = Loss between 10-12% Bulls
Since 2006, that setup has only happened six other times:
- 10/26/09, 10/26/10, 02/04/13, 08/04/17, 08/30/17, and 02/05/18
When we applied those dates to Dollar Futures, we noticed an interesting pattern for five of those six occurrences. Dollar Futures had a short-term rally then reversed to make a new closing low – that closing low proved to be a more meaningful bottom (or part of the bottoming process).
Here’s how we’re going to trade this current setup:
- Buy Dollar Futures on its next close below 92.740
- After that order is filled:
- Place a GTC Stop Loss order 2.000 below the entry price
- Place a GTC Sell Limit order 3.000 above the entry price
By executing this strategy to the previous instances, we have entered five trades with a win rate of 100% and an average gain of $3,000 per contract.
CONVICTION. EXECUTION. DISCIPLINE.
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