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Currency Market: The US Dollar Index Shook Out the Bulls


The US dollar has had a relief rally, but it still has work to do before the trend is up again.

The US Dollar Index has shaken out the bulls after consecutive closes below the 200-day moving average, and it has now popped back above that level as the selling has dried up. It certainly seems like this move might have been a head fake to get the weak hands (including me!) out of the market before moving higher again. I want to keep a close eye on this market here as it attempts to recapture short-term resistance levels. I continue to remain on the sidelines for now in DX, and will watch patiently for the next good risk reward trading setup. Only time will tell.

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The euro was probably the main culprit for this USD shakeout move, as it is now rolling back over, and it is now on the verge of breaking back below the 200-day moving average. Again, it looks like a move back below the 1.30 level on the euro could quickly open up the door for a move lower down to 1.20, but we need to watch patiently here and see which way this market wants to go. I think the shorts have been scared out of this market, which unfortunately probably makes it even weaker if we do start breaking support levels again. These currency markets sure have been tricky lately!

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The Canadian dollar has been the only currency market cooperating with my views recently, and the short position in this market I highlighted last week has worked pretty well. The Canadian dollar has now broken to new 52-week lows, and it still looks like it's headed down toward low 0.90s. The risk reward has shifted in this position; I will start to trail my stops to protect some profits, although I will definitely be looking to add back to this short position on any rally back above 0.97. See the chart below.

Click to enlarge

Good luck out there! These markets sure have been tricky, and we'll see where the powers that be mark them for quarter end. The rest of the week should be interesting.
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Positions in MCD futures.
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