Traders, it is time to take a look at the Dollar Index and the FX Strength Meter and get a handle on what me may want to trade in the hours/days ahead.
First, let's make 2 assumptions both of which will use the August 19th peak in DXC as the reference point.
- Assumption #1 is that DXC is looking to hold support and move higher
- Assumption #2 is that DXC is in the early stages of a sustained move lower.
For now I favor #1 but realize that both assumptions have merit.
Nonetheless, if we go with #1 we want to find the FX pairs that have rallied/sold off LESS THAN DXC has sold off.
- Under that scenario, USD/CAD would be more likely to rebound when DXC rebounds. USD/CAD has not followed DXC lower over the last few sessions, while AUD/USD would be likely to sell-off given that it barely rallied as DXC & the S&P's sold off.
- Conversely, if you think this DXC weakness will persist, longs in EUR/USD and shorts in USD/CHF are where you want to be.
Not an easy decision to be sure. Technically, DXC seems poised to rally while being bearish DXC seems like it is late to the party.
Time will tell - but by going through this process you can get a good sense on how to select pairs to trade.
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