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Markets: US Dollar Index at Critical Support Level


Now that the US Dollar Index is at the 80 support level, the market could be setting up for a turn.

The US Dollar Index ((UUP) ETF) has finally pulled back to the 80 support level we have been talking about for a while, and I think it is time to start increasing US dollar long exposure below this level.

We are bouncing back above 80 this morning as I write, so the market is respecting this support level after closing below 80 last night for the first time since January 3. Notice in the chart below how the DX is bouncing right at the 50-day moving average.

While we might get one more push into the lower 79 level, this would be a great risk-reward buying opportunity as I would raise stops on all DX longs positions to a close below the 79 level. Longer term I still think we are heading higher, with 90 easily achievable this year. You can do the math on that great risk-reward ratio!

Click to enlarge

The Euro ((FXE) ETF) has also failed above 1.30, and while it might have one more push higher into the 1.32 level, it looks like this bear market rally in the euro could be close to finished. Keep in mind the euro is basically 50%+ of the US Dollar Index, so if the DX holds 80, the euro should top out here around 1.30.

The October 2011 lows in the euro were right around 1.32, so that should be a major resistance level and should reject any rally if the euro is able to trade that high. I think you can start to leg into euro shorts in the 1.30-1.32 range. See the chart below…

Click to enlarge

The other way I like playing this US dollar trade is by shorting the British Pound ((FXB) ETF). Longer term, I think the British pound could trade down to 1.40, and here above 1.55 I think it offers a nice risk-reward short position. This bounce is starting to stall at the 50-day moving average, and the longer-term downtrend line should provide additional resistance in the upper 1.50s. Using a 1.57 stop, I think you can short the British pound aggressively at current levels. Good luck out there!

Click to enlarge
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Positions in EUO, British Pound futures
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