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Currency Market: US Dollar Index Is Consolidating Above the 82.5 Level


The US dollar should have very solid support around 81.5.

The US Dollar Index has consolidated over the past few weeks. While it is starting to form some short-term support at 82.5, I would wait for a break back down into the 81.5 level before getting aggressively long again. The 200-day moving average, currently just above 81, should provide solid support on any pullbacks below 81.5. Therefore, I think it is prudent to be patient and wait for that ideal risk/reward setup to increase long exposure to the US Dollar Index. See the chart below.

Click to enlarge

A couple other currencies have caught my interest in the past week, the first of which is the Canadian dollar. It looks to me like the Canadian dollar is an attractive risk/reward short at current levels. As you can see in the chart below, the short- and long-term trends are down, and the Canadian dollar is currently failing at the 50-day moving average. There is heavy overhead resistance at par and at the 200-day moving average; with downside to the low 0.90s, I think a short position makes sense here.

Click to enlarge

The Swiss franc has also reached a level where I think a short position makes sense with a good risk/reward setup. At 1.075, I think you are risking 100 on the upside, with potential for the Swiss franc to fall below par on the downside. I'll take that risk/reward setup any day. Notice in the chart below how the Swiss franc looks to be forming a head-and-shoulders topping pattern. A break back below the 200-day moving average near 1.06 would help confirm this failure.

Click to enlarge

Good luck out there!
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