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Currency Market: US Dollar Index Is Pushing Back Into New High Territory

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The euro has failed miserably again, and is currently making new two-year lows.

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MINYANVILLE ORIGINAL The US Dollar Index continues to act very well, and is close to making new highs thanks to the miserable performance of the euro. It looks like the next leg higher in the DX rally is starting, and when this market closes above the June high just under 84, I think we could see a sharp rally up into the high 80s. My intermediate term target has been 90 for a long time, so this level could be coming into play sooner than expected. We will need to watch the nature of this next leg higher closely to see if this is truly a strong wave 3 type move higher, in which case the 90 level might just be a temporary pause on the way to 120!


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As I mentioned above, the euro weakness has been the primary cause for the recent US Dollar Index strength, as it now seems that each bear market rally in the euro fails more quickly. The last pop in the euro could barely stay above 1.25 for more than a day, and this morning we are breaking to fresh new two-year lows. Longer term, I continue to believe the euro will trade back to and probably through par, and any rallies above 1.25 should be used to reduce exposure or short the euro. Add to your winners!


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One thing I have been wrong about the past couple of weeks has been the strength in the commodity currencies, specifically the Australian and New Zealand dollars. They have held up very well against the US dollar recently, but ultimately I think they will follow the euro and roll back over. That being said, it seems like commodities have had a decent risk on bid of late so I will cut my losers short and watch from the sidelines for a better entry point. This last push higher in the Australian dollar failed right at the 200-day moving average accompanied by negative divergence in momentum, as you can see in the chart below. I would watch for a potential head and shoulders top developing right here above par.


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Positions: EUO, GBP futures, USDJPY, USDCAD, AUDNZD, USDSEK, USDZAR, USDSGD, EURDKK, USDTRY, USDHUF.
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