End of Trump Trade: Episode 2/29
Day 3: January 3, 2025
A Day That Surprised Traders
On January 2, 2025, the market witnessed something unusual. Without any significant economic data release, the DXY surged by 1300 points, more than double its Average True Range (ATR).
This type of movement is rare and likely caught many traders off guard, especially those who were bullish on EURUSD and other currency pairs. It’s the kind of day where many positions get trapped because the market moves in a way few expect.
RSI’s Role in DXY Movement
If we analyze January 2, the DXY’s 1-hour RSI (Relative Strength Index) climbed to 83, a level indicating it was overbought.
When there’s no impactful news driving the market, an RSI at such levels typically signals that the price might reverse soon, potentially cooling down to around 40. But what happened the next day was even more revealing.
January 3: The Session-by-Session Story
As the trading day unfolded, DXY began showing signs of weakness, driven by overbought conditions. Let’s break it down session by session:
Sydney Session: The day started with DXY making its first low.
Tokyo Session: Tokyo took the momentum further, breaking Sydney’s low and going even lower.
London Session: London followed the trend, pushing DXY to new lows compared to Tokyo.
New York Session: A Shift in Momentum
When the New York Session opened, DXY initially held strong, reaching its high within the first hour. However, with the 20:30 IST release of ISM Manufacturing Data looming, the market showed hesitation.
By 18:30 IST, DXY had retraced back to its opening levels, influenced by both overbought RSI conditions and the anticipation of key economic data.
The ISM Data and Its Impact
At 20:30 IST, the ISM Manufacturing PMI data came in stronger than expected, causing an immediate 300-point spike in DXY.
However, the spotlight quickly shifted to the ISM Manufacturing Employment Data, which painted a weaker picture:
Forecast: 48.0
Actual: 45.3 (lower than the previous month’s 48.1).
This revealed a mixed scenario: while manufacturing activity was improving, employment within the sector was declining.
As next week is NFP Week, and employment data is very important
The Two Key Factors Pressuring DXY
During the NY session, two main factors pulled DXY back down:
Overbought RSI, which limited further bullish momentum.
Weak ISM Employment Data, signaling underlying weaknesses in the labor market data for next week.
Forecast for January 6, 2025:
Tokyo Session
Timing: 5:30 IST to 12:30 IST
Key Levels to Watch
Support Levels:
3-hour 20 MA @ 108.819
4-hour 20 MA @ 108.750
Expected Movements:
DXY could initially drop to these support levels, falling up to 200 points from 108.922.
After hitting support, DXY might rebound to test 108.990 (30-minute MA 20 resistance).
By the end of the Tokyo session, DXY could stabilize near its opening levels.
Trading Opportunities
Bullish EURUSD & Other Currency Pairs:
Look for bullish trades when DXY approaches its support levels (108.819 - 108.750).
Bearish EURUSD & Other Currency Pairs:
Enter bearish trades when DXY rebounds from support and tests 108.990 as resistance.
London and New York Session Strategies
For the London Session, the same approach applies. However, keep an eye on the German CPI data release at 18:30 IST, which might bring volatility.
In the New York Session, focus on the 20:15 IST release of S&P Global Services PMI data.
If this data is stronger than expected, DXY could surge again, potentially breaking the previous high.
At 20:15 IST, the S&P Global Services PMI data will be released. The forecast suggests it will be higher than last month’s figure. If the data comes out positive, DXY could potentially retest or even surpass its previous day’s higher high.
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Summary
Until the 20:15 IST data release, DXY is expected to stay below the previous day’s high during the Tokyo and London sessions.
In this episode of the End of Trump Trade, the big question is: Will DXY break its recent high of 109.157 before the NFP data day? The likely answer is no, at least not by Monday. This means most major currencies may remain sideways on Monday.
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A key reminder: Prepare yourself for unusual volatility from January 2, 2025, to January 20-29, 2025, and look forward to a potential market reversal from January 30, 2025. Stay focused and trade wisely!
For End of Tramp Trade Episode 1 article : https://www.dhirubhai.net/pulse/end-tramp-trade-episode-1-29-shaw-prabhu-5y49f/?trackingId=%2FoMj9%2FEjRfQE8xfgP3j0Dw%3D%3D
For Top 3 Forex Market Trends That Defined 2024 article: https://foxtraa.com/top-3-forex-market-trends-that-defined-2024/
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