Keep the edge playing: DXY and USDJPY analysis
Analysis by Muffett investments- 02/03/2026
The above is the daily chart of DXY. If you have been following us, we were looking for stronger DXY. We were expecting this scenario from December 2025 itself. We think that the price is finally moving like we thought it would. The reason we were bullish was the fact that the price took out the lows of a consolidation in which DXY was in for 6 months. So based on our liquidity concepts, we anticipate a move up to take liquidity on the opposing side. This is the edge in algorithmic trading. However in between our calls the market makers were manipulating the markets several times that we changed our minds several times. So reflecting on this, we think that we should follow concepts with discretion. But once the decision has been made, we have to stick to the decision and let the edge keep playing. We cannot win all the trades but we if we know our edge, keep repeating the process with risk management our edge will play out.
Another key is sentiment. In order to trip most of the market participants into the wrong side, the market makers will create price action that will create sentiment which is opposite to their intended direction. So near the bottom there was extreme bearishness on the dollar. But we want to point out that the difference in price action of a weak market and price action that is suggestive of a liquidity run. If the price closes weak at the lows when liquidity has been taken, then it is likely the price action is bearish. If however, the price takes out liquidity at the lows and then closes up, then it is likely that it was the market makers purging liquidity. We call it the liquidity purge and this sort of price action is suggestive that price might actually be bullish.
The DXY analysis: We think that as long as the price does not close below the gap, a bullish bias should be had until liquidity at the top has been taken out. It is important to remember that we are in period of uncertainty and developments in the middle east can have profound impact on the market. So we can expect wild swings but as long as price is above the gap, we will continue to maintain a bullish bias.
Another key concepts in algorithmic trading is the fact that the price goes from one side liquidity to the other. This occurs in all time frames. And rapid sustained moves in one direction often follow when opposite side liquidity is taken. An example is the nasdaq chart we will present now. We are waiting for purge of liquidity below followed by a run higher.
Here is the Nasdaq daily chart. We have been in a consolidation for the last 6 months. The price has made equal highs at the top. The price is now trending lower and it is very likely to take out the equal lows. If we have a purge here, then price will bounce back and take the liquidity at the top. If we close below the the liquidity weak, then price is very likely to go lower and take out the August lows at 22800. And if purge occurs here, then we can expect the market to take a measure of liquidity on the opposite side and because we think that Trump will want the markets higher, it is very likely that price will take out the engineered liquidity above.
We just have to keep playing the edge. The heads will keep ringing.
May peace be with you all.
