Watch Out For USD Bull Trap！？ Forex Markets Hit a Tipping Point！

Geopolitical tensions in the Middle East saw renewed uncertainties over the past weekend, ultimately failing to reach a comprehensive agreement. However, considering that the market's sensitivity has significantly dulled, unless hostilities officially resume, this is not expected to disrupt the performance of most assets. Recently, we can shift our focus toward the foreign exchange market. Taking the US Dollar Index (DXY) as a reference, the price action is currently hovering near a crucial watershed level. Based on our long-term bearish view on the dollar, there is reason to suspect that new selling opportunities may emerge, and the DXY itself faces the risk of a bull trap.

Earlier this year, the dollar once approached its 10-year long-term trendline, but the bulls ultimately defended this key stronghold and staged a rebound, trading in an oscillating upward pattern over the past few weeks. The current price level is leaning toward a potential head-and-shoulders bottom neckline resistance. If effectively broken, the theoretical upside target is expected to be in the 104-105 range. This would imply that the dollar still has significant upside room, while other non-US currencies would extend their losses.

$Euro FX - main 2609(EURmain)$ $British Pound - main 2609(GBPmain)$ $Invesco DB US Dollar Index Bullish Fund(UUP)$ $USD Index(USDindex.FOREX)$

However, apart from the weekly and monthly charts favoring the bulls, other perspectives seem questionable. First, from a macroeconomic perspective, the dollar's recent movements have decoupled from rising oil prices—in other words, it is no longer correlated with war or conflict. For most of the second quarter, the strength of the DXY was actually accompanied by the deterioration of US-Iran relations. Clearly, the current situation no longer aligns with this prior logic. Second, regarding fundamentals, although Warsh's appointment and inflationary pressures have put Federal Reserve rate hikes back on the agenda, looking globally, it is not hard to see that other major economies have also entered rate hike cycles, with some central banks acting even ahead of the US. That is to say, from the perspective of interest rate differentials, the dollar does not hold an inherent advantage.

$HKEX USD/CNH - main 2609(CNHmain)$ $Mini HKEX USD/CNH - main 2609(MCNHmain)$ $CME USD/CNH - main 2609(UCHmain)$

Historically, the only factor that might drive the dollar to continue surging is safe-haven demand amidst global economic turbulence. However, on the one hand, the US stock market remains rock solid; on the other hand, the performance of US Treasuries fails to provide a convincing outlook. Therefore, synthesizing these various aspects, there is reason to suspect that the dollar's rebound may be facing a turning point.

On the main counterparty side, the Euro presents exactly a mirror image: it is facing breakdown pressure from a pattern akin to a double or multiple top. We can leverage its breakout situation relative to the dollar to identify and evaluate subsequent trading possibilities. Primarily, this involves observing the synchronicity and validity of any potential breakouts. In the market action of January and April this year, both showed varying degrees of temporary decoupling, and the market later proved that the dollar's downside breakdown had failed at those times. Applying this to the current situation, if the Euro prints new short-to-medium-term lows, but the dollar fails to surpass its corresponding previous rebound high, there is a high probability of a bear/bull trap emerging. Of course, the performance of other non-US currencies, especially the Japanese Yen, will also partially impact the overall momentum of the DXY, but the Euro remains the primary benchmark.

$E-mini S&P 500 - main 2609(ESmain)$ $E-mini Nasdaq 100 - main 2609(NQmain)$ $E-mini Dow Jones - main 2609(YMmain)$

$SPDR S&P 500 ETF Trust(SPY)$ $Invesco QQQ(QQQ)$

Investors trading other instruments can also use the dollar's subsequent developments as a logical pillar for their own trades. If the dollar strengthens significantly, one needs to beware of the risk of pullbacks or extended losses in risk assets. Conversely, if the dollar spikes and then retreats, strong assets like US equities can confidently maintain a "slow bull" approach, adhering to the "strong get stronger" principle.

$Gold - main 2608(GCmain)$ $Silver - main 2607(SImain)$

Trading Strategy Updates

• Gold: The short gold order attempted last week was narrowly missed and unfilled. As the price has moved away this week, I have temporarily canceled the pending order and opted to stay on the sidelines.

• Crude Oil: For the medium-to-long-term strategy, a long order at 80 has been executed, with the remaining half of the pending order set at the 70 level. Stop-loss and target prices remain unchanged: the stop-loss is set at 60, with targets at 95 and 115 (closing half the position at each).

• New Strategy (Forex): For this week, I am attempting to go long on non-US currencies. Placing a pending long order on EUR/USD (futures) at 1.1420, with a stop-loss set below 1.1300, and targets at 1.1770 and 1.2420 (closing half the position at each).

P.S. If the first target is hit, the stop-loss will automatically be adjusted to the entry level. Any adjustments after execution will be updated in subsequent articles.