Hedge funds are bearish the dollar. I am not.

Hedge funds have abandoned the dollar in their droves. John C Burford explains why they're wrong.

My recent exploits in EUR/USD have offered textbook examples of how I play the twists and turns in the tricky currency markets using my tramline methods(incidentally, aren't they all very tricky?).

But the recent gyrations in EUR/USD have been particularly volatile. Many traders I am sure have been puzzled by these antics where whipsaws are common.

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So today, I will follow up on this trade because I have combined analysis of the short-term chart with the medium-term and fixed a maximum upside target which was met yesterday.

In my last update poston 1 April, I held a long position from the 1.12 area and observed the "Yellen rally" in five motive waves on the hourly:

16-4-1-MWT-2

The potential was for the market to start a turn back down since five waves appeared completed and there was a nice momentum divergence.

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But there was also another option: the market could go on to make new highs where my wave 5 was in reality just a larger scale third wave with waves 4 and 5 to come. I certainly did not want to miss that possibility to grab an extra profit.

And that is why I decided to use my split-bet strategy where I took a profit on one half of my position and left the other part open and raised my protective stop to at least the break-even point.

Since then, the market rally was maintained and rose to my target, which I gave earlier at the 114.50 area and this was the long-range daily chart I used to determine this target:

16-4-1-MWT-3

And this is what I wrote: "The rally has carried well above the Fibonacci 62% level where most turns are made. The next heavy resistance lies at the 78% level at around 1.1450, which is about 70 pips from the current price. That would be a nice addition to profits."

Here is the daily chart updated:

16-4-13-MWT-3

Yesterday, the market spiked up to 1.1465 and then fell back making a direct hit on my target where I was waiting to take the remaining profit.

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Here it is on the hourly:

16-4-13-MWT-4

The churning over the past few days has been difficult to analyse in Elliott wave terms, but I believe this is the most likely count. Yesterday's spike high was the final fifth wave. Also, this churning has been contained in the channel between a lovely tramline pair.

So with the 1.1450 Fibonacci target having been hit on a momentum divergence, and the hourly showing a complete five up (also on a momentum divergence), I have a terrific setup.

Breaking the lower tramline should help cement my bearish case.

Lurking in the background is a growing bearish sentiment picture towards the dollar. I have seen recent headlines referring to the death of the dollar. Here is one from Bloomberg: "Hedge funds abandoning dollar's biggest bull run in a generation" .

Hedge funds have been shedding long dollar bets in droves and now hold only a fraction of their former long futures positions. Apparently, they have followed like sheep the Fed's latest "hint" that they will now go easy on rate rises.

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And this abandonment took place in a market that showed no clear trend. Normally when hedge funds take one course of action, it moves the market mightily, but not this time. Is that a vital clue that the next big move in the dollar will be up?

If I am right, they have made a very big mistake but have followed their traditional pattern of being maximum wrong at major turns.

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