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Jay Norris
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Jay Norris is a 20-year CBOT floor veteran, author of the Best Seller "The Secret to Trading Forex, Futures, and ETFs: Risk Tolerance Threshold Theory", "Mastering the Currency Market", McGraw-Hill, 2009, and "Mastering Trade Selection and Management", McGraw-Hill,... More
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Trading University
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Seeking Alpha
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The Secret to Trading Forex, Futures, and ETF's: Risk Tolerance Threshold
  • Enter The Golden Age Of Currency Trading 0 comments
    Jun 4, 2014 5:51 PM | about stocks: UUP, FXE

    Markets are like ocean liners, they take a long time and a lot of room to turn around. But when they do, they are steadfast in holding the course of that new direction.

    The current long-term bottom the U.S. Dollar has sewn in over the last several years, Figure 1, reminds me of the last time the currency markets reversed on such a large scale, in 2002.

    (click to enlarge)Figure 1. Monthly Dollar Index Chart

    In 2000 and 2001 every analyst on Wall Street was sure the U.S. Dollar was going to top out and reverse lower and that the currencies and gold would soar. Similarly most house analysts today feel strongly that the Greenback will reverse higher and we will see a sustained bull market. The analysts and traders in 2000 were eventually proven correct, but, just as now, it took some time for the markets to prove them so, and many had to learn the hard way that in trading being early can be worse than being late.

    The currencies and gold did eventually launch a historic bull market which proved a bonanza for both traders and investors.

    Similarly the U.S. Dollar is at the other end of the spectrum; stalled at the starting gate of a new bull market by falling volume and volatility following a 13-year bear market. The Monthly Dollar Index chart in Figure 1 highlights the falling volatility in the form of a shrinking ATR -- Average True Range; while the 4-hour Euro chart in Figure 2 highlights a sharp drop in tick volume earlier this year.

    (click to enlarge)Figure 2. Falling volume on rallies over past 6-months in Euro

    The falling volume in Figure 2 told us that there were fewer and fewer new buyers on the price rises. The price rises -- rallies -- were being fueled by short-covering by sellers wishing to avoid further losses, rather than enthusiastic buyers. While falling volatility in a rising market is normal, such a large percentage drop in volume in a rising market is definitely a sign of underlying weakness. While not necessarily actionable information for traders, it is a part of the big picture, as is shrinking volatility in the Dollar Index. Both developments point toward a long-term top in the Euro and a long-term bottom for the U.S. Dollar. We see this price action as a reflection of underlying fundamentals -- in a word "stability" in everything in the U.S. from job growth to housing to interest rates to energy output.

    We see the current environment as a precursor for a sea change move in the currency markets which will prove a bonanza for traders who made the cut following the Great Recession and who have been honing their skills since. From an experienced traders perspective there is nothing as rewarding as a long-term bull run.

    Welcome to The Golden Age of Currency Trading!

    Jay Norris teaches the art of trading at Trading University and is the author of "The Secret to Trading: Risk Tolerance Threshold Theory".

    Disclosure: I am long UUP.

    Stocks: UUP, FXE
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