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Currency Market: US Dollar Index Attempting to Turn Higher


The DX could stage a rally from these levels, but if it can't hold 81, look out below!

The US Dollar Index has remained under pressure. While the shorter-term trend is still down, it is encouraging that the 200-day moving average on the DX is starting to turn slightly higher, and maybe this will be enough to turn it back higher here. In mid-June, it undercut the 200-day moving average before starting a nice three-week rally. Even though this has been very frustrating for longs lately, it might be time to start getting long the US dollar with tight stops below the 81 level. See the chart below.

Click to enlarge

To generate some trade ideas for long USD exposure, I would like to look at two currencies that have remained relatively weak in the recent US dollar sell-off.

The first I would like to highlight is the British pound. Notice how the pound has not been able to even touch the 200-day moving average on this latest rally attempt; it even looks like it is in the process of forming a bearish head-and-shoulders pattern. Momentum is starting to roll back over, and I like the risk/reward in short positions here.

Click to enlarge

The Canadian dollar has underperformed even worse than the British pound. I think that this is another currency that offers a great risk/reward setup on the short side. Momentum is rolling over here as well, and it has not even been able to rally up to the 200-day moving average since the beginning of the year. That is clearly a weak market, and exactly the type of trade we want to put on in order to benefit from a potential US dollar rally. The commodity currencies should continue to underperform, and the CAD fits the bill!

Click to enlarge
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Positions in DX, M6B, M6E, MCD, and MJY futures.
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