US Dollar (Monthly)

Some traders prefer to trade currency itself instead of trading currency pairs. That means they analyze basket of currency individually

Siavash Yafteh, analyst contest

Some traders prefer to trade currency itself instead of trading currency pairs. That means they analyze basket of currency individually and decide on getting long or short that particular currency. It"s also helpful for managing your currency basket and reducing the risk. What I like to do here is to analyze two or three base US Dollar currencies and decide on the direction of the move and then do the same thing with other major currencies as well. Currencies like GBP, EUR, AUD. So stick around.

USD/JPY Monthly Chart:

Let"s begin with this pair. On the Monthly chart of USD/JPY, there is a channel that could easily be identified, forming from late 2011. As it is clear on the chart you can count 5 waves up in this fashion or any other form you prefer, but one thing is clear we have our 5 waves.

If you draw a line connecting end of wave 2 and 4, then draw another parallel line from top of wave 3 or wave 1 you can see the channel and the projection which give you two valuable information. Any break under the lower line will give you the alert for end of the 5-wave sequence and beginning of correction waves and the upper line will show you the estimate zone for ending wave 5 in the sequence.

Now that we know we are in the correction waves, direction of the move is clear. Where these correction waves would most likely to end? Well Elliott has a guide line for that. Correction waves would most likely end somewhere in vicinity of the previous wave 4. In this case wave 4 ended near 101.00.

Note that this is not means that the price will go down immediately to that level, you should analyze the pair for best entry according to the time frame you wish to trade and count the correction wave too.

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USD/CAD Monthly Chart:

Now that we have our first chart and the direction of the trend, let"s take a look in another pair for more confirmation.

There is channel forming in Monthly chart. If you look closely at MACD, you can easily see that there is a crossover in MACD but you cannot see any divergence in MACD on the Monthly chart, however there is a candlestick pattern formed at the top, and if you go to Weekly chart you see a divergence within the MACD between the two tops of the channel. Again with this large time frame it needs more time to develop and adjust the price to that direction.

You can do this for your entire currency basket, I am not going to do that right now, but you can add two or more minor pairs to your analysis. So in the end if we want to decide on the direction of the US Dollar we can say that it will go down in the bigger picture, but if you want to trade some pairs like AUD/USD or EUR/USD, I recommend to do the same thing with other currencies as well. For example if you decide that US Dollar is going to be weak this year and EUR is going to be in a range market and AUD is going to have a pretty good year, you can compare those and decide that you prefer to go long AUD/USD and Short USD/CAD and maybe do not trade EUR/USD (if you trend trader). Note that those are not recommendation for trades. They are just an example.

In addition to that you can analyze DXY and EUR or any other spot basket and see if those are showing the same direction.

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