A Dollar Bounce – Likely A Dead Cat

If you’ve never heard the term “dead cat bounce” – here it is. A dead cat bounce is an industry term used to describe the upward movement of a given asset “contrary” to a larger degree down trend.

Dead Cat Bounce – In finance, a dead cat bounce is a small, brief recovery in the price of a declining stock.Derived from the idea that “even a dead cat will bounce if it falls from a great height”, the phrase, which originated on Wall Street, is also popularly applied to any case where a subject experiences a brief resurgence during or following a severe decline. (thanks Wikipedia)

In this case – I guess it’s not exactly a dead cat bounce, as the dollar has only just recently begun it’s expected downward fall – but I do expect a “bounce” all the same. As far as trading it goes – if you are an equities buyer – I imagine you should get some nice opportunities to buy in coming days, before this thing lifts off to new highs.

As a currency trader – I am not going to bother doing anything short of watching the dollar closely – and aim to catch it at its peak (perhaps around 81 late in the week) before re-entering “short dollar” positions across the board. It’s not worth trying to squeeze every single penny, and push any further short dollar positions now ( considering I am 100% in cash).

Best trade is no trade at all here – and as I’ve said many times before – I am not missing anything – there are a million trades – and chasing anything is a fools game.

$dxy november 26th

Strategic Positioning for the Dollar’s Technical Rebound

Reading the DXY Chart Like a Professional

When you’re looking at that DXY chart, you need to understand what’s actually happening beneath the surface. The dollar index sitting around current levels isn’t just some random number – it’s sitting at a critical technical juncture that’s been years in the making. The 81 level I mentioned isn’t pulled out of thin air. It represents a confluence of the 50-day moving average, previous support turned resistance, and a key Fibonacci retracement level from the dollar’s broader decline.

Here’s what most retail traders miss: they see a bounce coming and immediately want to jump long USD across all pairs. That’s amateur hour thinking. Professional traders understand that not all dollar pairs will react the same way to this technical bounce. EUR/USD will likely respect the bounce more cleanly than something like USD/JPY, which has its own carry trade dynamics and Bank of Japan intervention concerns muddying the waters. AUD/USD and NZD/USD? Those commodity currencies have their own fundamental drivers that could easily override any short-term dollar strength.

Why Patience Beats FOMO Every Single Time

I’ve been trading currencies for long enough to know that the market will always be there tomorrow. The traders who consistently lose money are the ones who feel like they need to be in a position at all times. They see the dollar starting to bounce and think they’re missing out on easy money. Let me tell you something – there’s no such thing as easy money in forex, and the moment you start thinking there is, the market will humble you real quick.

Right now, we’re in a transition period. The dollar’s longer-term bearish structure is still intact, but we’re getting this technical relief rally that could run for several days, maybe even a couple weeks. The smart money isn’t chasing this bounce – they’re waiting for it to exhaust itself so they can reload on short dollar positions at better levels. That’s exactly what I’m doing, and it’s what you should be doing too if you want to trade like a professional instead of gambling like a tourist.

Cross Currency Opportunities During Dollar Bounces

Here’s where it gets interesting for the more sophisticated currency traders. When the dollar is bouncing but you know it’s temporary, you don’t just sit on your hands completely. You start looking at cross currency pairs where the dollar’s temporary strength creates distortions in other currency relationships. EUR/GBP, GBP/JPY, AUD/NZD – these pairs can offer excellent opportunities when the dollar’s movement is creating artificial pressure on one side or the other.

Take EUR/GBP for example. If the dollar bounce hits EUR/USD harder than GBP/USD due to different fundamental factors, you might see EUR/GBP drop to levels that don’t make sense from a purely European economic perspective. That’s where the real money is made – finding these temporary dislocations and positioning accordingly. But again, this requires patience and the discipline to wait for the right setup instead of forcing trades.

Managing Risk When the Trend Gets Choppy

The most dangerous time for currency traders isn’t during strong trends – it’s during these transitional periods when you get counter-trend bounces that can last longer than expected. Even though I’m confident this dollar bounce is temporary, I’m not arrogant enough to think I can perfectly time when it ends. Markets have a way of staying irrational longer than you can stay solvent, as the saying goes.

This is why position sizing becomes absolutely critical during periods like this. When I do re-enter short dollar positions, they won’t be the same size as trades I’d make during a clear trending environment. The volatility is higher, the signals are messier, and the probability of being wrong in the short term is elevated. Smart traders adjust their risk accordingly instead of treating every market environment the same way.

The key is maintaining that longer-term perspective while respecting what the market is telling you in the short term. The dollar’s structural problems haven’t gone away, but that doesn’t mean you ignore technical levels and market dynamics. Trade what you see, not what you think should happen.