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Currency Market: US Dollar Index Is Now Trying to Turn Higher at Key 79 Level


The euro has not been able to follow through, and the Japanese yen is breaking down.

The US Dollar Index is trying hard to turn back up at the key 79 level I have been talking about for months now. The bears did a good job of spooking the bulls on the push below 79, but it is looking like the downside move in the US dollar is over.

I would like to see a move above 80 to confirm that the turn is in, and we might get a little more chop in here with European headlines dominating the tape. I like how the US dollar is respecting this 79 support level, and the moving average convergence-divergence indicator is close to turning back to a positive buy signal. Wait for a close back above the 80 level to really get aggressively long, but be prepared because we are getting some early signals this market is turning. See the turn below:

Click to enlarge

One of the biggest technical developments in the currency market is happening right before our eyes today. The Japanese yen (ETF: (FXY)) is breaking the 200-day moving average for the first time since April 2011, as the Bank of Japan's actions of an increased asset purchase program have weakened the yen. This is a major change in the longer term trend of this currency, and I would use any rallies to enter short positions against the yen. The yen has held up against the US dollar for a very long time, so the fact that this longer-term trend could be in the process of turning would mean the US Dollar Index could have some added wind at its back! See the 200-day break in the yen below:

Click to enlarge

Another currency near the 200-day moving average relative to the US dollar is the Mexican peso. The peso has been very strong in this US dollar sell-off, and now it looks like it could be running into resistance at the 200-day moving average. I think the peso could be setting up for a good risk-reward short here rolling over at resistance, and notice how the MACD indicator is just giving a sell signal. If a US dollar rally gains steam, the peso should trade sharply lower from this level.

Click to enlarge

Good luck out there, and keep managing risk…it seems like some of these markets are starting to wind up for a big move soon!

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Positions in EUO, yen futures, EURUSD cross, EURGBP cross, USDCAD cross, USDJPY cross, USDMXN cross
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