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Market Report: All Eyes on the Dollar

I left readers last week with the idea of the stock markets to move lower, prior to that the expectation was for a move lower in the precious metals and a move higher in the DX to correct the powerful decline we have seen since the 25th July highs in the US$.

The market followed that script nicely as we can see on the updated charts from my last publication. We remained short the markets for the majority of last week, I was looking for 7200 to be hit on the DAX and 2750 on the NDX.

I also had 2 targets in mind on the ES, either 1435ES or 1420ES; having failed to get back above 1435ES on Friday it was clear the market was making its intentions known to see the lower target. It's now I suspect we have a setup on the US markets to push higher, as many of the jigsaw pieces look like they all could come together.


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The NDX and DAX have pushed lower to our targets, in fact the NDX has pushed lower than I thought but still fine, as looking as the DAX and SPX, they appear to be inside their respective targets.


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So this is where the bulls need to stand up and be counted, as the setup is there for them to take, and rally the markets higher.


I have spoke a few times about the importance of the US$ and why traders should be watching its gyrations.

If you look at the chart below you can clearly see that for the majority of pivots the YM is simply basing its moves from the US$ (DX), further inspection suggests that is the DX could have actually ended a 3 wave advance from the 14th Sept low, and ready to move lower, that according to this chart should see US stocks move higher, I am using the YM as a proxy for the US stock markets, but if you overlay the ES it is essentially the same trade.

DX versus YM
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The key for the risk markets to move higher is for the US$ to move lower, that happens to be crucial for other markets such as the metals.

Gold Vs DX

DX versus Gold
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The above chart shows a similar correlation between Gold and the DX, I simply suspect all we have witnessed over the past few weeks is a correction, baring a strong move back above 80.30 then 80.50 on the DX, I strongly suspect that we have witnessed a 3 wave bounce in the US$ (DX) which is counter corrective against the main trend, which has been down in the US$ since the 25th July highs.

As we can see the gyrations on the DX are very important not only to the precious metals, but to forex and stock traders. If the next move is setting up lower on the US$, IMO it will suggest higher in stocks, metals and forex US$ weighted pairs such as EURUSD and GBPUSD.

The same would apply in reverse, in order to negate the bullish expectations the bulls in the US$ will need to see a serious strong break higher before it damages the current trend, as the theme currently is US$ down - Risk Up.

Until that theme changes then traders need to remain bullish on risk markets and look to buy the dips in risk related markets, I currently think that both European and US stocks are very close to a turn and setting up for a move higher, if the correlation continues and we see the US$ break lower that will support that thesis.


Using AGQ as a proxy for silver it looks like its ending an expanded flat pattern, very similar to the gyrations on the YM market, so if stocks are setting up higher (suspected ideas presently) and the US$ moves lower, it should give a welcome boost higher to both Gold and Silver.

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The great thing about where the markets are sat, is that we will know shortly if our ideas are valid or if the US$ sees a strong move to negate our bullish expectations, if so we can simply reverse our bias and sell risk markets if the US$ gets a serious bid.

AGQ versus YM

But I am a believer of staying with what works and not trying to overcomplicate things with "what ifs" when the only thing we can control is what we see and trust our ideas.


If you are interested in following my work and ideas, from Sunday 12pm EST (noon) 14th Oct - Until Friday 19th Oct after the markets close, the main forums will be open to the public to view all this week.

No need to join or pay anything, you can simply view the updates as they happen.

This will give you in-depth view and see if my work can help you in your trading, with the way the markets are sat it should be a good week ahead.

You can read more here: http://www.wavepatterntraders.com/topic/1213-free-week-14th-october-19th-october-2012/page__pid__26618#entry26618


Going into next week I am looking for a reversal now in the US$ (DX) which should see moves higher in European and US stock markets, as well as forex pairs like GBPUSD and EURUSD, as well as seeing the precious metals head higher.

It will need a strong break higher in the US$ to negate those ideas, for now............ we await the markets decision and follow.

Until next time,

Have a profitable week ahead.


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