Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Today's Strength in the British Pound, Euro Is Testing Dollar Bulls


The US Dollar Index is testing key levels below the 82 support level.

Currencies have remained volatile over the past week, and just when it looked like the US Dollar Index would resume its bull trend, the market has reversed and is now testing key levels for DX bulls. I have been watching this 82 level as key support, and we were breaking below that level this morning. However, I am starting to see some divergences in the currency market, as the British pound has been strong, but the Australian dollar has been relatively weak. So I am going to be a little patient today with DX long positions, and see which way things go from here. If the US Dollar Index can't get back above the 82 level in the next couple days, and especially if we see a close below the 81.75 level, it might be time to get back on the short side of the US dollar. We will have a lot of headline noise with the Fed starting to meet today and the ECB decision looming, so be careful…the next few days will be volatile!

Click to enlarge

A big reason for recent US Dollar Index weakness has been the euro bouncing off the 200-day moving average and holding round number support around the 1.30 level. Rallying back up to the underside of the 1.32 level looks like a very good risk reward short opportunity to me, which is another reason I am inclined to give DX long positions a little bit of room. It looks to me like the euro should fail here below 1.32, and there is potential for a break of 1.30 support after the ECB decision. If the euro can't hold the 200-day moving average on the next test lower, it opens the door to significantly lower prices, and I would use a target of 1.20 if we do start to see a downside break through the 1.28 level. That would start to confirm the process of a head and shoulders topping pattern forming for the euro. See below.

Click to enlarge

The Australian dollar continues to hold my attention because it has relatively underperformed with the recent US dollar weakness. This could be an additional warning about potential future commodity weakness, as well as concerns about China slowing down. I would keep a close eye on this currency here, as it seems to me like another very attractive risk reward setup on the short side. The AUDUSD cross has been stuck in a range from 1.02 to 1.06 for almost the past year, and it has spent the past couple weeks closing below the 200-day moving average. It looks like there is downside to well below par from current levels, and short positions can be established at current levels risking basically less than 50 pips, which provide an excellent risk reward ratio. See the bearish setup below. Good luck!

Click to enlarge
< Previous
  • 1
Next >
Positions in DX, M6E, M6A, MJY futures.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos