Dollar Index Update

As we head into the mid part of the UK session we are looking at an index that is centered and showing little bias. Trend studies have converged, our statistical model shows price currently centered on the mean and the cyclical model adds no additional information.

The computer forcast for today is for a flat to mildley higher dollar. Risk tollerance is still realtively low in the longer term studies, but short term has seen and increase so a small move or whip is not out of the question. At this time we are standing aside until a stronger bias or break develops.

John E. Putman II
Putman Financial Inc
Managing Partner
The Sonoran Fund LLC

Tuesday Outlook:

Short term risk tolerance is up so we could see another move on Tuesday similar to Monday's price action. Long term risk models are still fluctuating and don't provide much help right now.

Statistically the Dollar is just slightly overbought in a bearish trend that has shown little more than technical correction at this point. The most recent move down in the dollar did bounce up from our 1st support line so there doesn't appear to be a lot of commitment at this moment for additional (deeper) drives south.

Charts for our model can be found at www.putmanfinancial.com/research.htm

Wednesday Outlook:

Risk Tolerance is on the rise but still a little short of our preferred level. Short term RT is in neutral territory and providing little in the way of a forecast right now.

Statistical Models found a way to wring themselves out of the overbought condition by dumping the buck back down to our first volatility adjusted support line. We see some initial indication in the cyclical model for a move up and given the markets eagerness to churn up and down we see little reason for this not to play out. Trend models generally are in sync and favor a weaker dollar but consolidation indicators are starting to gain strength; we could see the downward move in the buck begin to fade over the next couple of days as the market finds its footing.

The computer model supports the cyclical and stat model and forecasts a move up in the dollar in the next 24 to 48 hours.

Complete analysis at:
http://www.fxstreet.com/nou/content/105710/content.asp

Wednesday Update
If you are holding short dollar positions, our model has begun to signal for an exit; and there is little reason to think they will run much further than where they are, with the light news schedule in the US session.

Traders with more risk tollerance could hold positions until the end of the UK session, but given the markets cyclical nature I wouldn't hold these through the night.

Thursday Outlook:
With a further decline in the dollar today, we see the Risk Tolerance models dumping well into negative territory in both models.

The drop in the dollar also pushed us well past the first and second volatility adjusted support levels, right down to the third where we finally got some support and a little bit of a bounce.

With trend firmly in place at the moment its hard to know if the statistical model that favors cyclical action had any forecasting value at this point: The primary stat model shows the buck only mildly oversold and the secondary model has us pegged in the bottom of a cycle. The secondary model will typically run in the bottom of its channel while a trend unwinds itself, but is very often followed by some level of technical easing. By Friday or Monday we should see some minor strengthening in the greenback.

The computer model forecast for Thursday is flat overall with a slightly higher bias in the dollar.

The Complete analysis is at:
http://www.fxstreet.com/nou/content/105710/content.asp
Charts available at www.putmanfinancial.com/research.htm

Friday Outlook for the Dollar Index: Return of the Trend?
Cyclical models are failing as the bear trend continues to establish itself; although much of the dollars fall off Wednesday was the result of a strong move in the Pound, it was still enough to push the dollar below our third support level.

Our primary statistical model is centered which for a second night in a row gives us very little in the way of a forecast; although the likelihood is for a move higher, a move down from this position can't be ruled out - little help there.

The secondary stat model is still buried in the bottom of its channel and the time that has spanned since it first hit is getting a little long in the tooth; this signals some level of technical easing in the bear trend is very probable. What's hard to quantify with these models is the effect of consolidation. If the dollar stalls at these levels it will actually lift the statistics as the mean continues to fall; effectively closing the gap and providing the illusion of "mean reversion". In short what appears to be an extreme oversold position; may not result in a strong technical (or even a weak) correction if it hangs at current levels for any period of time.

I'm not calling an end to the cyclical market just yet (and don't think I could call it if I had to) but I do think caution should be exercised as the market seems ready to discount the dollar. As we've said before, there is a fundamental need for a weaker dollar, but most of the central banks have clearly said "Not in my back yard". That could make for some interesting market action as we round out Q4.

The computer model that has keyed in on the cycles for the past few months is showing a flat dollar tomorrow; that's as good a guess as any, but in all reality I think right now we're seeing limitations in the algorithms learning process. It will take a couple of these stronger moves to balance out the dataset and give the software the history it needs to begin to pick up on the nuances of a shifting market dynamic. Neural Nets are like their human counterparts; slow to change - once they get in the groove they rely on what they know (or learn each time they are ran) and all they can know right now is the tight cycle the dollar has been in for the last few months.

Where does this leave us right now... no where. The probability is for a statistical move back to the mean. That translates into a move back up in the buck or stalling at this level but, Risk Tolerance is so low in the market right now we are standing aside and calling it a week.

The Complete analysis is at:
http://www.fxstreet.com/nou/content/105710/content.asp
Charts available at www.putmanfinancial.com/research.htm

Monday Outlook for the Dollar Index: Hindsight is 20/20

A very late move Friday has been followed up by an unusually strong move today (Sunday). Strong moves on Sundays often leave the market a little jittery, and while I typically steer clear of anything that remotely looks political - we could be seeing early nerves as the US Presidential election draws near.

Right at this moment the risk model is still in a High Tolerance mode, but that's only because this move hasn't had a chance to work itself into the indicator yet; by time the London session begins it will be in a down-ward spiral. More telling right now is the location of the short-term risk cycle, which is in deep negative territory. If you didn't short the dollar Friday or earlier today; this really is no mans land right now.

Friday's very quiet market (early) allowed the stat model and cyclical model to roll over without actually having to produce any technical retracement; the cyclical model gave signals for a move down (see blue markers on index price chart), but we normally discount any type of late Friday signal. This latest drop in the dollar has pushed us well below our support bands and it's been a long, long time, since I've seen that. Price typically stalls out here until it retraces back up or the bands make their way to the current level, which can take several days...

The Complete analysis is at:
http://www.fxstreet.com/nou/content/105710/content.asp
Charts available at www.putmanfinancial.com/research.htm


__________________

Tuesday Outlook for the Dollar Index: Nothing to cheer about

The index managed to finish the day flat overall as Sunday's move took the wind out of the markets sails. Cyclical models are bottoming out forecasting a move up, but as we mentioned Thursday night, we might be seeing the market shed its cyclical tendencies. That's not to say a technical correction isn't in the works; it probably is, but this level of dollar sell off very likely represents a new comfort level for the buck and a large move back up is not as likely as continued probing and testing of lower levels.

Statistical models have worked their way back up into neutral territory as the mean continues to drift south in the index. Little inference can be made current levels in the primary model. The secondary model, which had risen modestly Friday before the break lower, has now been pushed to extremely low levels again....

The Complete analysis is at:
http://www.fxstreet.com/nou/content/105710/content.asp
Charts available at www.putmanfinancial.com/research.htm

Wednesday Outlook for the Dollar Index:

The index pushed a little higher Tuesday giving us a decent technical correction and more lift than I really expected. The index found some resistance at our lowest volatility band (which is also sharing space with the 200EMA.) Cyclical models have rolled up and are forecasting a move back down in the dollar.

Statistical models (both primary and secondary) have also worked their way to higher levels and while not exactly oversold, are supporting the cyclical model for a move down.


The Complete analysis is at:
http://www.fxstreet.com/nou/content/105710/content.asp
Charts available at www.putmanfinancial.com/research.htm

Monday Outlook for the Dollar Index:

The index continues to find support at its recent low and resistance at the lower vol bands & 50EMA; eventually something will give.

The cyclical model is signaling for a move back up in the pair which is no big surprise given the limited correction after the move south of the boarder.

Statistical models (both primary and secondary) have also worked their way to slightly oversold positions as the index has retreated from the EMA and moved back below the lowest vol band. I'm going to be surprised if a large move below current levels occur prior to the election but anything could happen.

Monday Outlook for the Dollar Index:

European Market Outlook (Update)

We established a strong dollar bias in early Asian trading and have caught a very small move; we are however, seeing some resistance at current price levels. Cyclical models are still forecasting a move up in the buck but risk events in the next 24hrs will have more influence than any model we could ever dream up. If there is a bright side, right now the probability for a abrupt move to a weaker dollar is not likely before the election.

Charts available at www.putmanfinancial.com/research.htm

Monday Outlook for the Dollar Index:

US Market Outlook (Update)

The dollar has broken through some of the resistance that weighed down on it, but not convincingly. We're going to begin to trim long dollar positions at this point and that will keep us out until after the election.

Charts available at www.putmanfinancial.com/research.htm

Thursday Outlook for the Dollar Index:

The market is still cooling off from the election and I don't expect a lot of activity in Thursday's session as everything continues to sink in.

Currently cyclical models are neutral and not offering much in the way of a forecast for us. The decline in the dollar today has pushed the dollar lower in both our statistical models and we see some indication of technical easing from these levels, either in the form of a retracement or consolidation at current levels.

Charts available at www.putmanfinancial.com/research.htm
For a two week trial to our signal4x service please visit our website

Friday Outlook for the Dollar Index:

The dollar pushed moderately lower today and is currently tracking our second volatility support band. NFP is due out tomorrow so we expect the European session to be relatively quiet.

Currently cyclical models are signaling for a move up, but there is some major resistance just above these levels so any strength will be limited prior to NFP.

Statistical models are mixed; the primary model has centered itself while the secondary model remains oversold. If the dollar doesn't strengthen prior to the US session, the current state of the secondary model would point to prolonged consolidation, which is often the case leading up to the payroll figure.

Charts available at www.putmanfinancial.com/research.htm

Not good for Euro-stocks!

Not looking good at all!

Friday Outlook for the Dollar Index:

Currently cyclical models are signaling for a move up and there is a little room to run if it goes that way.

Statistical models are oversold but both show enough retracement that a continued slide south is not out of the question. Obviously we are pushing the envelope here in some of the pairs, but don't look for things to make a lot of sense right now. Last year right around this time the market totaly unhooked itself from any positive dollar news and it just kept selling off.

Risk Tolerance has turned down and is signaling for a cool of period after Fridays very choppy action. The probability of a strong break will diminish as the day progresses.

The computer forecast for the next 24 to 48hrs is for a stronger dollar and we see risk for reversal later in the forecast.

Our Model 1: Chances are slim that we will get a good signal tonight; with risk tolerance falling off, the probability of a meaningful break is low, but the odds of a whip is high.
-- Current Support & Resistance
EUR/USD 1.2976 / 1.2762
GBP/USD 1.8573 / 1.8306
USD/CHF 1.2003 / 1.1760
These are current levels for model 1 and will most likely change before any signal is sent.

Model 2: Our bias heading into the next session is for a strong dollar. We're establishing long dollar positions prior to the London open and will close those positions out @ 16:00 GMT.

ATR for Stops: 1% at 113pips

PFI Positions this morning: We're following model 2 with no other input. We'll let the positions run until the EOD or to the stop loss.

maxpain said:

Not looking good at all!

Click to expand...

Nice chart - I'm lost on some of the notations though; how do your a & b's and numbers fit into the mix?

Certainly does paint a powerful picture!

Long dollar positions are starting to weaken just a little; both the EUR/USD and USD/CHF are in positive territory but the pound has slid back into a small loss; I'll be letting these run for another half hour or so and will begin to trim them out from there.

Its been a while since I dropped in here, thought I should blow the dust off this old thread... I'm currently on the wrong side this move in the buck. Currently the pound is giving me the most problem. The short term model in "short" the dollar into Monday and the longer term model is bullish on the buck into Tuesday... In the end its a coin toss; it does look like I got on the wrong side though. We'll let it run out and see what happens.

Monday Model Forecast
The bad news is I've been on the wrong side of this move almost from the moment the last call was made. The model switched gears through the Asian session and the final run was for weaker dollar. The good news is we remain locked in our range and this may lead to a short term reversal and some easing in the loss of the trade. I think some of this move has less to do with Construction Spending (Please), and is actually more anticipatory in the face of the rate decision tomorrow. A break higher has plenty of room to run before hitting our upper resistance bands.

24hr Forecast: Due at 20:00 GMT 48hr Forecast: Due at 20:00 GMT.

Technical Outlook
Despite the strong move in the Pound we remain capped inside the upper limits of the current range at least for the movement; with RSI hitting 80+ I think the majority of the move is over and I'll hold these positions into the later session. The momentum from now until 4:00 GMT will tell us a lot.

Notable Calendar Events in the next 24hrs
FOMC Rate Decision - .25bps expected and we are probably building that in right now. If we get .50bps I have little doubt we will break out of this range to the high side as the longer term expectations will have to be adjusted. The bigger question is, what happens if we only see .25bps; how much of it has already been built in. It's hard to say - in the short term we could see a little move higher but we have to assume that's already factored in; a change in wording could obviously spark a strong move and I don't think we're going to see "measured" suddenly re-appear. The only surprise at this point, I feel, will be more hawkish sentiment, which will rally the dollar.

Trade Calls*
Currently holding short dollar positions that are taking a hit. When the dust settles, I'll reevaluate the price action against our major resistance and see where we've ended up. If the resistance holds through the day, I'll keep these trades open, if the short-term forecast supports it.

*PFI typically established its trades at 5:00 GMT at Market, alternative entries may be noted for informational purposes; if stops are placed, they will be placed outside of the Daily ATR. PFI does not set limits on trades. Traders should use stops that are appropriate for the leverage they are using and the level of funding in their accounts. We recommend traders limit total leverage used, if possible, to less than 8:1 and keep total loss in any single trade between 1 and 2% of total account equity.