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US Dollar Index Continues to Frustrate Trend Traders


The US dollar got hit on the Summers news, and it remains just above critical support.

The US Dollar Index could not be much more frustrating to me than it has been over the past quarter; every time it looks like a trend is turning higher, it fails to confirm and creates another whipsaw. If a high level of frustration is any indication that a trend should emerge soon, then we are overdue in the US dollar! This sharp pullback into the 81 level needs to hold for the DX to have a chance to rally into quarter-end. I am going to stick with a bullish position for now, although tight stops are needed if the 81 level breaks.

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The euro bounced right off of the 200-day moving average, and it has rallied back up to the underside of the 1.34 level, which is basically a six-month high. The euro failed at this level in June and August, so there is a good bit of resistance overhead, although the higher low earlier this month keeps the euro in a bullish position. It seems like this market is winding up right into quarter-end, so hopefully we will get some resolution soon and see it break out one way or another.

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We should continue to watch the Japanese yen closely, as it too has been trading around a key level; it could be poised to weaken further if the USD is able to push above the 100 level. The short yen trade seems to be pretty crowded, however, so I would be careful with this one as we head into quarter-end. A rally in the yen would catch a lot of shorts offside, and that could be an early warning signal for risk.

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Positions in DX futures and options.
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