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Currency Markets: US Dollar Index Trying to Turn Short-Term Trend Higher


A recapture of the 200-day moving average would be bullish for the US dollar.

The US Dollar Index is starting to establish some support at the 80 level, and the short-term trend has turned higher over the past month or so. The next level of interest is around 81.50, which was the November 2013 high; also, the 200-day moving average lies just above around 81.60. It looks like this could be the early start of a trend higher, and I would be scaling into long US Dollar Index positions using the 80 level as a stop. The euro is starting to look toppy, and that could really get the US Dollar Index going on the upside. 2014 might be the year the USD makes a big comeback!

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The Japanese Yen is worth watching here because it seems to be moving in lockstep with the S&P 500 (INDEXSP:.INX) lately, and this risk on/risk off barometer has seen increasingly high correlation to recent market movements. After a nice bounce in the USDJPY cross over the past couple days, and subsequent stock rally, it will be interesting if it starts to fail at the underside of the broken uptrend line. For now the trend in USDJPY is firmly higher, but this could be an early warning signal as this trend has certainly gone a long way, and a carry trade unwind could be ominous for the global stock markets.

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The New Zealand dollar has started off 2014 on a strong note, and is currently one of the only commodity currencies trading above the 200-day moving average. The longer-term pattern looks constructive as well with the potential for a large cup-and-handle forming over the past year or so. This would be one of the few currencies I would be comfortable being long against the USD. Pullbacks to the 0.82 level should be good opportunities to establish bullish positions in the New Zealand dollar.

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Happy New Year, and here's to a happy, healthy, and successful 2014!
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Positions in DX, DX options, MJY futures.
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