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Currency Market: US Dollar Index Should Hold 82 Near Term as the Trend Is Clearly Higher


The euro has quickly hit 1.25, and volatility will most likely remain elevated.

MINYANVILLE ORIGINAL The US Dollar Index continues to chug higher after breaking out above the January highs around the 82 level, and this pause at 83 does not look like it will last very long. I like to see this strongly trending market only pull back for a couple days which should help fuel the next leg higher. We should now keep an eye out for any pullbacks in the 81-82 range to add to US dollar long exposure. Looking out, I still think 90, and longer term 110, are very achievable targets. This trend has plenty of room to the upside.

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The euro trended lower strongly in May, moving straight down from 1.32 to 1.23, and it has started to stabilize a little here below 1.25. However, I think any rallies should be sold, especially if it gets back into the upper 1.20s. Longer term, I still think it will trade back to parity with the US dollar, but with the situation so dire in Europe, we will still have to contend with a headline driven market. Therefore, be careful for a short covering spike on "positive" European news.

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One currency pair I am following closely here is the EURCAD, and I really like the risk reward of short positions in this cross at current levels. The Canadian dollar has sold off with the entire commodity complex, and I think this has provided an interesting opportunity to short the euro in Canadian dollar terms. The EURCAD is in a clear downward trend, and there is heavy resistance short term in the 1.30 area. I think this cross could quickly roll back over to the 1.25 level, and potentially lower, giving you a nice 4+ reward to 1 risk unit trade at current levels just above 1.29. I think when you really think about it, investors would rather hold a commodity backed currency instead of the euro!

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