The US Dollar Index
has essentially traded sideways for the past week, which is probably healthy given the strong two-week rally since the beginning of May. This is hopefully building up some power for another leg higher, as we are less than a dollar away from new 52-week highs. Any move back below 81 is probably a good opportunity to add to winning long DX positions, and if this up trend is as strong as I think it could be, we might not see a 70 handle on the DX in a while. See the chart below.
The euro sell-off has clearly been the primary reason for US dollar strength, and it certainly doesn’t look like things are going to get better in Europe any time soon. Although I would note that short positions are very high in the euro right now, so that could provide a little bit of support as it looks like the euro wants to test the 1.25 level. However, I want to remain focused on the bigger picture in this trade, and as you can see in the below weekly chart, this recent selloff in the euro is breaking major long term support. This would project the euro falling all the way down to the 1.10 level, which would closely coincide with my longer term target of trading back to parity (and possibly below) the US dollar.
The British pound has held up very well against the US dollar relatively, at least until it started to catch up on the downside last week. I think a British pound short position is now probably one of the better ways to get long the US dollar with a great near-term risk reward setup. I don’t see the GBP getting back above 1.60 anytime soon, and it is now breaking below the 200-day around 1.58. I can easily see a longer-term target of 1.425 and possibly lower on the GBP, so it offers a pretty attractive risk reward short at current levels. I have personally covered some euro shorts and rolled those profits into GBP short positions, and you can see the 200-day moving average break below. Good luck out there!
Positions in British Pound futures, EURUSD, GBPUSD, USDCAD, GBPJPY, EURCAD, USDDKK
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.