The dollar is set to be on the rebound, expect a potentially fast rally

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Last Updated, Nov 13, 2023, 5:33 AM

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U.S. dollar bank notes are arranged for a photograph on September 7, 2017 in Hong Kong.

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In April we were bearish on the dollar with the chart suggesting a downside target near 0.85 was a possibility. Support near 0.885 had no historical precedent so traders were ready to short the US dollar on any fall below the consolidation area near 0.885.

This did not develop, and the 0.885 level provided a good consolidation point. The breakout at the beginning of May was strong and quickly moved above the initial resistance level near 0.91. The strong rally pushed through the next trade band target near 0.93 and then peaked at resistance near 0.95.

The rally was stronger than expected and provided good long side trading opportunities. The key question now is about the strength of the pullback and the potential to develop a new rebound rally.

Trend analysis is applied using the Guppy Multiple Moving Average indicator (GMMA). The GMMA analysis shows the long downtrend has the potential to change.

There are three GMMA trend analysis features. The first feature is that the long term GMMA is showing signs of compression and has begin to turn up. This is bullish.

The second feature is the way the price has clustered along the upper edge of the long term GMMA as the rally developed. This further confirms uptrend strength.

The third feature is the separation between the long term GMMA and the short term GMMA that had remained steady since 2017 November. For the first time in 6 months that separation has disappeared as the short term GMMA has penetrated and begun to move above the long term GMMA. This is usually associated with a change in the trend.

The upside targets are well defined using trading band analysis. Traders watch for consolidation and a rebound from 0.93 followed by a test of the upper edge of the trading band near 0.95. A breakout above this level has trade band target near 0.97.

We use the ANTSYSS trade method to extract good returns from the potentially fast rally as the rebound develops.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

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