The US Dollar Index is testing the highs from last July, and so far, we seem to be stalling right below the major 84.25 breakout level. However, last Friday saw a weekly close above the breakout level, so I would imagine that once the Fed headlines are over tomorrow, it should be safe to start buying the US Dollar Index on pullbacks to the 83 level. Another weekly close above the 84.25 level opens the door all the way to 89, which is the high from the summer of 2010. Above 89, it is pretty much clear sailing straight to 100, so you can see why I still very much like the risk reward of this trade, even after the recent rally.
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The euro is having an oversold bounce this week, and it is on the verge of a major breakdown, which would complete a head-and-shoulders topping pattern. This would be activated with a close below the 1.2750 level, and the downside target remains 1.20, which shows that there is still some nice risk reward in this trade. I would be selling any rallies in the euro, especially anything approaching the 1.30 level, as you have the 50-day and 200-day moving averages providing resistance there. See the chart below.
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It seems like volatility is creeping back in under the surface of the market, and bonds, currencies, and commodities have all been seeing some pretty crazy moves. I would continue to manage risk and reduce excessive commodity exposure where necessary. Be careful out there…another strong leg higher in this US Dollar Index rally could really start to wreak havoc on some other markets!
Positions in DX, M6A, M6E, MJY, NZD & Gold futures and options.
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