This US dollar bull run is just unbelievable! Although we are nearing the festive season and the end of the year, the dollar is just not taking its foot off the gas. Let’s look at the US Dollar index:

US Dollar Index Daily Chart

The first thing I Iearned about forex trading, was to trade in the direction of the trend. In more detail, to trade in the direction of impulsive price action. To trade against a major FX trend is like getting in the way of a heavy cargo train at full speed. Not a very good idea. Don’t fight strong market momentum, you will lose money consistently! Counter-trend trading can be profitable but requires great skill and discipline. Trading with the trend is easier and increases your chances of success immensely.

EUR/USD

I love it when a plan comes together! The breakout-retest trade setup I mentioned in some of my recent articles is playing out perfectly. Here is a daily chart with the setup:

EUR/USD Daily Chart

The small red circle marks the two daily candles which popped into the sell zone on Monday and Friday. The price has retraced somewhat in the last hour, but the trade is still in profit by about 90 pips. At the moment the technicals and fundamentals suggest a further decline in the EUR/USD, so this setup still holds much potential.

GBP/USD

It’s amazing how technical analysis can many times predict turning points accurately. In the following chart, you will see how a former support zone turned into a strong zone of resistance once the price had broken through it:

GBP/USD Daily Chart

I have a very rich uncle who drives Ferraris and owns a couple of very expensive racing horses. He knows all about betting odds and so on. I think he would be impressed by the accuracy of proper technical analysis.

USD/CAD

Perhaps you wondered whether the US dollar outperformed all of the other major currencies today. One strong contender managed to keep back the mighty dollar, however – the Canadian dollar.

USD/CAD Daily Chart

I mentioned on Sunday, that caution should be exercised in buying the US dollar against the Canadian dollar. Although the pair is trading above its 200-day moving average (which suggests that the pair is in an uptrend), the US dollar hasn’t recently broken to new highs against the Canadian dollar. If you compare the USD/CAD to other major pairs, like the EUR/USD, USD/CHF, USD/JPY, and the AUD/USD, you will find that the dollar has been much stronger against these currencies and has reached new highs against them on the daily timeframes.

If we investigate what the oil price has done in the last few weeks, we will better understand the USD/CAD’s relative weakness, or rather, the Canadian dollar’s strength. Here is a daily chart of US Oil:

US Oil Daily Chart

As you may know, there is a strong correlation between the oil price and the Canadian dollar. Consequently, a rise in the oil price normally translates into a stronger Canadian dollar. If we look at the chart above, it is clear why the Canadian dollar has held back the Buck so well. The oil price has risen tremendously over the last couple of weeks, and also today.

Where exactly the USD/CAD will move in the next couple of days is unclear, but one thing is certain, the Canadian dollar is the most attractive currency to buy against the US dollar at the moment. I’m just saying this for the sake of the traders out there who’d like to short the US dollar. I certainly don’t fall into this group, because in my opinion, the US dollar is performing very well, and is definitely one of the last currencies I’d like to short at the moment.

Tomorrow (Wednesday) is a quiet day in terms of economic news events. I don’t expect anything spectacular. If you’re trading the Canadian dollar or oil, you might want to keep an eye on the US crude oil inventories at 15:30 GMT.

Have a splendid trading day!