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Currency Market: US Dollar Index Pulls Back to Find Support at the 78 Level


US Dollar Index is trending higher, and this pullback to support should be a buying opportunity.

The US Dollar Index bounced right at the 78 support level I mentioned last week (see US Dollar Index Rallies Into Resistance; Pullback or Consolidation Expected) and has been grinding higher since, staying well bid even with the equity market bounce. My bullish view on USD has not changed, and I think this pullback is a great buying opportunity to add to a winning trade.

I would keep a little dry powder available in case we get one more pullback below 78, but this trend is clearly moving higher and I feel comfortable being long USD as long as we are above 77.50.

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The commodity currencies have really outperformed over the past week, as the coordinated central bank action at the end of November sparked a "risk on" rally, and the Australian and Canadian dollars led the way higher. Australia actually just cut rates, so the AUDUSD will be an interesting currency cross to watch here at these levels. If the Australian dollar rolls over here below the 200-day moving average, and especially closing below 1.01, it could be another bullish data point for the USD.

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The Japanese yen is another currency I think is worth watching closely. Regular readers will know that I have been bearish on the yen, and I continue to be, although I have been trading around this one a little bit more since the longer-term trend has not turned yet. I took some profits on the USDJPY cross when it rallied above 78, and I will be looking to add back to USDJPY long positions below 77.50. I would like to get really aggressive on the long side if the USDJPY pulled all the way back to 77. Good luck!

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