Over the last few months the #dollar has been an extremely tough chart to read and determine the future of. One of the things that make the charts so difficult is how it's higher time frame charts are considered to be in consolidation. Knowing when to determine if a chart is in consolidation or not is so vital. There are always key things that take place on the charts that allow us to know the state of the chart at any time. With that said, understanding market movements at a very deep level allows us to have a better idea of what may take place, ahead of the crowd.
Ever since the early summer, the analysis done on the charts led me to believe that we should expect a drop in price. At this time price was in the 96 range and started to drop. As it dropped it headed toward and institutional area of demand located on the weekly chart. I knew, by looking at the formation of the zone that it was likely to break and price would drop through. Last week this happened, just as expected.
Now that this weekly demand has been taken out, what's next? Considering the consolidated state of price, it's difficult to say, but what can be said is that there is weekly supply located at the 95's and should a rally take place in price toward that area it is likely we'll see a reaction from there and more lows to come.
When we examine the #cftc #CoT report what we can see is that right now the long positions being held by the institutions are somewhat aggressive and their short positions are very small. But don't let that trick you into thinking that this must mean they are ready to take price higher. Reading the CoT data is never that simple! Right now overall exposure on the long side is 83% which is considered to be high and price has made a significant rally up from earlier this year and there hasn't been any sort of profit taking on these long positions yet. So with this understanding, it becomes evident that some profit taking on longs could very likely come into play soon.
When you also match this up with what we can see with the #eurusd the institutions are holding massive amounts of long positions and some profit taking is to be expected before we ever see a more forceful push lower.
CONCLUSION ~ The momentum has shifted to the downside with the #dollar, that can not be ignored on debated in my opinion. What is left to see is how far of a drop we will get but what i can say is we have substantial supply waiting for us should price decide to head higher which leads me to believe more downside is in the works here!
Magic Trader
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