Stocks tend to get all the attention, but that leaves many other opportunities on the table.
You should be following the currency market as well. After all, currencies can have a big impact…
The Japanese yen played a key role in the market sell-off around the world at the beginning of August.
And roughly $7.5 trillion in currency trades happen every single day. So developments in key currency markets can drive sharp swings elsewhere.
Critically, those swings can lead to profit opportunities. I should know because I’ve been trading currencies since the 1980s.
And over my 40-year career, I’ve traded nearly a trillion dollars’ worth of currencies.
I can tell you that when volatility picks up in the world’s major currencies, prime trading opportunities emerge.
Today, I’ll break down our latest trade that capped off a profitable August…
Tracking the Dollar’s Trend
We’ve been tracking the U.S. Dollar Index (DXY) for quite some time.
DXY tracks the dollar’s performance against a basket of other currencies.
Back in June, I showed you how DXY was coiling for a major move. I had this to say back then:
The sideways trading range keeps getting narrower. We call this “coiling.”
And it means the battle between the bulls and bears is getting more intense.
Each side is stepping in more quickly to push the dollar back in the other direction.
Eventually, one side is going to win out, and it will deliver a big move in the dollar.
While this tension is building, it’s not yet clear whether DXY will surge or slump. So we need to wait for it to break through one of the trend lines.
And as you can see in the chart below, the dollar had a big breakdown.
The move below the lower dashed trend line led to a large decline in DXY.
But that decline went too far and too fast.
It brought the dollar back to a key support level (the shaded area in the chart).
That presented our next trading opportunity…
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Playing a Dollar Bounce
No other currency has a greater bearing on DXY than the euro. It makes up 58% of that basket.
That means the euro has a major impact on movements in DXY.
So as DXY was finding support at the 100 level, I spotted a trading opportunity.
The chart below shows the EUR/USD currency pair. When the line is rising, that means the euro is strengthening against the dollar.
And when the line is falling, that means the dollar is strengthening against the euro.
While DXY was finding price support at the 100 level, the EUR/USD pair was testing key resistance at 1.12 (the shaded box).
Signs hinted that the trend extended too far to the upside. The Relative Strength Index (RSI) was in overbought territory after pushing above 70.
Plus the RSI showed upside momentum was weakening. It made a lower high even as EUR/USD made a higher high on August 23.
I recommended a short trade on EUR/USD to my Currency Wizard subscribers on August 23. That way, we’d profit as the euro weakened against the dollar.
And that’s exactly what played out.
Just six days later, we closed the trade with a $1,170 gain for anyone trading one standard lot.
In fact, that was the sixth consecutive gain for Currency Wizard subscribers in August.
And as of Friday, we’ve already opened up another new trade on EUR/USD.
It just goes to show that volatility means opportunity in currency markets. And as this bout of volatility continues, I’ll keep looking for the best opportunities to bring to my subscribers.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. If you’d like to learn more about how the currency market works, you can write to [email protected]. I’d love to address your questions in a future essay.