The US Dollar Index shook me out after breaking the 200-day moving average to the downside, and it now looks set to resume the trend higher. Typical of the market to move against participants to the point of maximum pain, and then turn right back around! As frustrating as this can be, it still requires us to manage risk when the market doesn’t move as expected. While this DX rally might consolidate here below the May highs, it looks like the advance is strong enough to resume the longer-term uptrend in the US dollar. I would look to add back long DX exposure starting here, and scale larger back below 83. If this uptrend is indeed intact, we should not see another test back down toward the 200-day moving average around the 81 level. See the US Dollar Index setup below.
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The euro also had a significant reversal month in June, and it is now below the 200-day moving average. It seems to be sitting on top of a cliff at this 1.30 level, and it could move swiftly lower if this level is broken convincingly. Again, this market moved just enough to scare some shorts out, and now it might be in a weaker position to complete the larger head-and-shoulders pattern that has been forming over the past year. Longer term, there is still downside in the euro to below 1.20, so I would be careful of this market.
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The British pound is acting even weaker than the euro, and it certainly looks like it could be on the verge of breaking some key levels. It failed right at the 200-day moving average in June, and it now looks poised to test a small uptrend line just above 1.50. This market could see a major move lower if that 1.50 level is broken, and I would look to sell any rallies in the British pound. This underperforming currency could have downside to 1.40 if the US dollar has in fact resumed the uptrend. Be careful out there!
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Positions in DX, M6E, M6B futures.
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