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Buying the dollar is the right trade right now. But this may not be the best time to jump in. It’s just a really crowded trade. Everyone loves the dollar, and hates the euro right now. I want to go long the dollar, but I’m waiting for the right time. We may get a good opportunity next week.

Take a look at the weekly chart of the dollar index below. The RSI indicator at the bottom shows the index is now approaching overbought levels. The most important thing to watch however is how the price will close on Friday.

As you can see, I’m using a Japanese candle chart for this analysis. The last time the dollar index was at the same overbought levels, that week closed with a Japanese candle pattern known as doji. We’re seeing something similar developing this week.

This kind of pattern develops when the price opens and closes at the same level. So the candle ends up having no real body. This indicates indecision, and usually is a sign the trend is close to peaking in the short-term.

If the dollar index closes this week with a doji, it’s very likely we will get a good correction next week, especially with the dollar approaching overbought conditions. I would use any dollar correction to establish new long dollar positions.

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