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Currency Market: US Dollar Index on the Verge of a Major Technical Breakdown -- Look Out Below!


The Japanese yen and Swiss franc continue to benefit from US dollar weakness and safe-haven bids.

The US Dollar Index is on the verge of breaking the 79 level, which would bring it to almost fresh new two-year lows. Closing below the 79 level would confirm a head-and-shoulders pattern that would project prices falling back into the mid-70s. I would continue to sell any rallies in the US dollar and position for what could be further weakness. It will be interesting to see if commodities start to get a bid.

Click to enlarge

The Japanese yen continues to look very interesting to me on the long side, and you can see why in the chart below. This currency has basically been flat for the past three months, and it's starting to attack the upper end of the range, which also happens to coincide with the 200-day moving average. The yen could really take off with further US dollar weakness and continued risk aversion in the global macro world. Long Japanese yen could be a great risk hedge here if carry trades start to unwind.

Click to enlarge

The Swiss franc also is trending in the right direction and should continue to benefit as well from US dollar weakness and a flight-to-safety bid amid geopolitical concerns. This currency is also attacking the upper end of recent ranges and isn't far off from breaking out to new highs for the year. There's a big gap down to be filled to get back to the highs of 2011, which were near 1.25, and therefore could justify an upside target of 1.25 for the Swissy. 

Click to enlarge

Good luck out there. As Paul Tudor Jones II said yesterday, this might be the toughest macro trading environment he has ever seen. That's quite a statement from a risk-taker of his caliber who has been doing it for more than 30 years! Keep managing risk!
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Position in MJY & MSF futures.
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