US Dollar Sentiment

Several weeks ago, after the latest NFP report we wrote that the US Dollar’s run if anything should gain momentum.

In the weeks following it certainly did just that.

This past Monday was truly pandemonium in the markets worldwide, and strangely, despite tanking stocks in the worlds largest economies, the US Dollar gained momentum against the secondary pairs and almost all the crosses.

There are, however three major exceptions. Contrary to all expectations, the dollar absolutely tanked against the Euro, Swiss and Yen.

While I can certainly understand the Yen and Chf’s resilience as a safe haven, the Euro got me scratching my head. Most indicators created by huge price action turned the Euro Bullish. Is this just a knee jerk or a true indication of sentiment away from the US Dollar?

Traders Emotional Index – A Human Chart.

This human chart reflects how traders are feeling and in turn what to expect. On Monday, emotions were truly “off the chart” so to speak and to put it mildly, and clearly reflected market pain.

Fear: The Pain Factor

That brings me to the next point: Fear and greed are the two strongest emotions that move traders. In this case, in the wake of stock market turmoil, the dominating emotion is fear.

Everything is very quickly pushed into the background by the masses when the pain factor, or fear, is high and the NYSE sell off was JUST the catalyst to do the job. Pain intensity increased the more the Index and the market tanked. The continuous talk of doom and gloom by the so called experts and commentators did not help either.

The shine on the last years gain and resilience of US Dollar was quickly waning; you would have thought this was 2002 all over again. Market sentiment looked to Europe and Japan for safety.

My personal belief is this was as I said earlier a knee jerk reaction. The Yen made sense and I could understand it looking like a safe haven, but not the Euro. I kept thinking, “what a great pullback to go long the Dollar.” But I too was feeling doubt.

All I can say and I have seen it over and over since 1987 –  when the pain factor is intensified all logic is off the table and emotions take over. It’s us mere humans who trade these markets and make the ultimate decisions. Yes sentiment and belief under crisis throws logic and everything out the window and emotion takes over. WE ARE AFTER ALL HUMAN!!

I am pleased that as markets have somewhat normalized the last few days and the stock market is fighting to recover, logic has once again prevailed and look at the US Dollar going strong now. We may still have some scary moments in the weeks and months ahead but I’m happy to be betting on the big dog in this race.

I was once told by a veteran trader almost 30 years ago:

“If you have a view and really, really believe in it, then trade your view with absolute conviction until your view alters course. Live and die with your conviction.  Forex is highly speculative and risky in nature, if you want to make money then pain is part of the process it is impossible to avoid. Only you can decide if you have the stomach to handle the good with the bad”

Now, time for confession.

So there it is: For now, I am a US Dollar Bull for medium and long term trading. But that said, I will be the first to tell you when and if that view changes.

Forex is highly speculative and risky in nature. If you want to make money, then pain is part of the process. It is impossible to avoid. Only you can decide if you have the stomach to “handle the good with the bad.”