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Currency Markets: US Dollar Index Stuck After a Small Bounce Back


The Japanese yen continues to look interesting on the long side -- and the Swiss franc as well.

The US Dollar index rallied back up to the 80 resistance level, which also happens to coincide with a declining 50-day moving average. The longer-term trend is still down, so I would continue to look to short the DX above the 80 level. I think you're risking less than a dollar for 5+ to the downside if the US Dollar index breaks back down into the mid-70s. The declining 200-day moving average is just below 81 and could be used as a good risk level for short positions.

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The Japanese yen is actually up for the year, and I like the way it has consolidated and basically traded flat for the past three months. Even the longer-term 200-day moving average has flattened out -- this market could get explosive on the upside if we enter a risk-off environment and carry trades are unwound. I like the short-term levels here for long exposure with a tight stop. Should be a good hedge!

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The Swiss franc looks like another currency that could benefit from a flight to safety in a risk-off environment, and the risk reward for long positions looks attractive at current levels. The weakness in the US dollar has largely been a result of the strength in European currencies, and the safe-haven status of the Swiss franc could keep that trend higher firmly in place -- even in a risk-off environment.

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Author holds position in MJY and MSF futures.
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