Question What does the weak dollar mean for my positions?

[Sarah Benneter]

Hey everyone, I’m still pretty new to the forex scene and I’ve been trying to wrap my head around today’s news. I saw that the dollar took a hit after that big Japanese bond auction and the pound is looking super strong because of the jobs data. Ngl, I'm a little lost on how this actually moves the charts for a beginner like me.

I keep hearing people talk about how the yen is catching some momentum, but I’m not sure if this is a short-term scalp move or if the dollar is going to be weak for a while. I’ve got a small position open and I’m definitely feeling a bit of fomo watching these swings. Should I be looking to hedge, or is this just a bunch of noise that I should ignore until the dust settles? Any advice on how you guys interpret this kind of news would be a huge help.

 

[Zakami Ng]

Honestly, it depends on what you're holding, but usually a weak buck is a green light for the majors to run. I’ve been tracking the DXY and the RSI is showing some pretty heavy oversold conditions on the daily. I'm waiting for a solid MACD crossover on the 4H before I even think about a reversal though. Just be careful chasing the trend right now, I'm starting to see some slight bullish divergence forming on the dollar index which might mean this weakness is hitting a floor soon.

 

[Noah Vance BR]

Careful fading this macro trend just on indicators @Zakami Ng. I ran a quick backtest on DXY daily RSI divergence under 30 over a 12-year sample, and buying the bounce without a macro catalyst only gave about a 41% win rate. The expected value is negative unless your R:R is well above 1:2.5 to offset all the false bottoms you get dragged through.

For OP, a weak dollar statistically pushes up EURUSD and gold, but the math says stick with the trend until price actually breaks key market structure. Trying to catch the DXY floor based on indicator exhaustion alone is a low-probability play.