How to trade the ‘oversold’ USD trend – EUR/USD, USD/CAD, Silver

Welcome to your weekly edge in the markets with clear, actionable insights.

It’s split into two parts:

1. Weekly thoughts – practical trading strategies, tips, and educational ideas to help sharpen your skills.

2. Setups & signals – our top 3 trade ideas for the week, complete with charts and key levels to watch.

Weekly thoughts

It’s all well and good saying “the trend is your friend” but people’s ‘beliefs’ get in the way of trend following. Specifically:

1. When the trend is just getting started, you don’t believe it’s real.

2. When the trend has persisted for a while, you don’t believe it can continue.

The US dollar has been on a long downtrend, and just keeps getting weaker. Technically we can call this ‘oversold’.

You can simply see it in the extended move from top left to bottom right in price on the chart - or you can use an indicator like the RSI on the weekly chart to see it’s below 30 in the forex pairs where USD is the numerator (USD/SEK) and above 70 in the pairs where USD is the denominator (EUR/USD).

Do I know if this dollar downtrend will continue? Nope.

Do economists know? Definitely not.

There are some convincing arguments for sure: the US government is too indebted, the world is diversifying away from US dollars, central banks are turning to gold for their reserves instead of dollars etc.

Just as convincing, you can also say the dollar is still the world reserve currency and will always be the safe haven currency of choice in times of uncertainty when there is often a ‘dollar shortage’.

What I do know is:

1. Trends persist, so you can follow them.

2. Trends reverse first and the the ‘reasons’ come second

I’ve talked about this idea before - but I’ll talk about it again today - and I will again later! But hopefully in unique ways that are relevant to the current markets :)

The idea is to look for opportunities to go long and short the US dollar at the same time when the trend in the US dollar looks overbought or oversold.

This of course doesn’t mean buying and selling the same pair at the same time- this is useless and gets you stuck in do-nothing trades.

You can do this by trading the same currency pair on different timeframes. E.g. you buy EUR/USD on the 1hr chart and sell for a different reason on the daily chart. I find this very hard to do but if you can somehow split your opinion on what you want to happen with a pair in two, well done - and this might be worth trying.

Instead, what I do is look for possible USD trend reversals on the charts that I usually trade, like the weekly and daily, as well as look for trades in uncorrelated markets that are less unaffected by the moves in the US dollar.

The obvious downside to hedging is that it will take away from your profits in the scenario that the trend continues. E.g. if you had been buying EUR/USD in the current uptrend while also shorting GBP/USD, the losses on the GBP trades will have taken away from the profits on the EUR trades.

THREE things -

1. This is why I only hedge when the trend has already persisted for a while and the market is overbought (or oversold in a downtrend) because this shows it is more likely to be near an end.

2. Hedging helps me pull the trigger. For me, I’d prefer to place a hedge that reduces my profit but also gives me the psychological ‘belief’ to keep trading the trend instead of fearing a reversal and placing no trade at all.

3. The trend might NOT continue and the hedge turns a profit.

So this week, I have selected 3 trade ideas out of all of our ideas that includes:

1. A USD downtrend continuation: EUR/USD.

2. A USD downtrend reversal: USD/CAD.

3. An uncorrelated market: Silver.

Setups and signals

We look at hundreds of charts each week and present you with three of our favourite setups and signals.

EUR/USD

Setup

EUR/USD is in a strong uptrend and recently broke above multi-year resistance just under 1.16. The pair looks to be targeting long term resistance at 1.23.

Signal

RSI is dropping back from overbought territory on the daily chart, offering a possible dip-buying opportunity above resistance-turned-support at 1.16.

USD/CAD

Setup

USD/CAD has broken below its long term uptrend line and is making lower lows while below the 30 week SMA, indicating a downtrend.

Signal

The daily chart shows a steep downtrend with RSI having twice been oversold at the May and June lows. However, on the most recent re-test of the lows RSI has held up. A double bottom pattern confirmed by a break back over 50 RSI could signal a more sustained bounce.

Silver (XAG/USD)

Setup

Silver is sitting just under multi-decade highs having broken above $34 resistance last month. The long term cup and handle pattern is still in place.

Signal

The price has been consolidating in what could be a bull flag pattern between 35 and 37. A breakout could trigger the next leg of the uptrend, whereas a drop below the bottom of the flag would imply a retest of 34.