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US Dollar Index Starts 2012 With Nice Move to Upside


The US Dollar Index held the solid 80 support level and continues to trend higher.

2012 has started off nicely for US dollar bulls, and I continue to like adding long US dollar exposure on any pullbacks.

We have been talking about this 80 level for a couple months now, and that prior resistance level has now turned into strong support. This level proved itself to start off the year, and should be watched closely now as a good spot to buy pullbacks in the US Dollar Index (UUP).

I will again show the weekly chart below, and you should notice how the 200-week moving average is starting to turn up, and prior highs near 89 will be our first target for long positions.

Click to enlarge

One thing I have been watching closely is that some of the commodity currencies are holding up better against the US dollar, and this is obviously a result of the euro weakness. I am watching this closely because if the commodity currencies roll back over, it could really kick the US Dollar Index rally into higher gear.

The Canadian Dollar (FXC) really interests me because it looks like it is going to be the first commodity currency to roll over here. I think the Canadian dollar is setting up as a nice risk-reward short again, and above 0.98 I think you are risking a 0.99 stop with a 0.90 downside target. I'll take 8-to-1 reward to risk any day! Notice the rally into the declining 20-week moving average on the below weekly chart of the Canadian dollar.

Click to enlarge

Speaking of commodities, and touching on an "alternative currency" theme, the metals markets are at very interesting junctures here. Specifically, I would like to highlight gold because I think it is setting up as a nice risk-reward short for the first time in a while. I think the longer-term trend in gold has potentially changed to down, and this rally back above the 200-day moving average might be a good opportunity to sell gold positions. I don't see gold getting back above 1,700 any time soon, and I think there is downside potential to 1,300.

Other resistance levels I am watching in the metals are 30 in silver and 3.50 in copper. See the gold short setup below.

Click to enlarge

It is nice to see equities rallying in tandem with the US dollar to start off the new year, so hopefully we can keep this momentum going. I'll continue to keep sharing my thoughts on the markets here each Tuesday, so keep an eye out for updates! Best of luck in these crazy markets!
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Positions in EUO, British Pound futures, Canadian dollar futures, gold futures.
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