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Currency Market: Major Failure in Euro Strongly Rallies US Dollar Index


The short-term trend has turned higher.

The US Dollar Index tested the February lows and rallied strongly off the 79 level, turning the short-term trend back higher with the push through 81. The 200 day moving average is still providing heavy resistance for this market around 81.81, but after some consolidation for a couple weeks, it looks like the US Dollar Index might be strong enough to push back up through that level. The weak longs have probably been cleaned out now, including myself, and I would look for any pullbacks to the 80.50 level to add long positions to the US Dollar Index. If the trend has indeed turned higher, DX should not break back below the 80 level. The risk reward is shifting back in favor of the bulls here!

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The Japanese yen is forming a huge triangle pattern, and it is now coming to an apex sitting right on top of 200 day moving average support. It looks like the USDJPY cross could rally back through 100 soon, and that could certainly be a bullish indicator for risk in general. It is interesting that the Nikkei (INDEXNIKKEI:NI225) is also forming a huge triangle pattern that should resolve to the upside as well. This could be the key currency cross to watch in the coming weeks and into year-end as a break through 100 might trigger another leg higher for the equity markets around the world…it almost got there today!

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The Canadian dollar has been one of the weakest currencies relative to the US dollar, and it looks like it is starting to trend lower. After two failures at the 200 day moving average in September and October, it has now made a third lower high here in early November, and looks like it could be picking up speed down into the low 0.90s. I would use any rallies into the 0.96 level to increase short exposure to the Canadian dollar, with nice risk reward there to a target down below 0.90. Good luck!

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Positions in DX options, M6A, M6B, M6E, MCD, MJY, MSF futures.
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