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US Dollar Index Trying to Break Out on the Upside Again


The US dollar is pushing through the May highs. Will this second time be the real breakout?

The US Dollar Index has continued trending strongly higher over the past few weeks, and it is again testing the 84.5 breakout level, which coincides with the May highs. It will be interesting to see if it can really bust through these levels on the second try; considering the momentum behind this move, I think this time it might be for real. Ideally, I would like to buy more DX on a pullback to the 83 level, but if this trend is for real, we might not see those levels again anytime soon. See the breakout below.

Click to enlarge

The euro is less than 50 pips away from making new lows for 2013, and this had obviously been the biggest driver of the US Dollar Index. Any rallies back up to the 1.30 level should have significant resistance there, and that would be an ideal spot to add to short positions. However, closing below 1.275 opens the door straight down to 1.20, so I would not be too cute with this one. Even at current levels, the euro looks like an attractive risk-reward short. See the critical breakdown level below.

Click to enlarge

The British pound continues to underperform, and it was not even able to get above the 200-day moving average for more than a day at the June highs. The pound actually traded at fresh 2013 lows earlier this morning so it will be interesting to see if it can close below the March lows today. This would mark almost three-year lows for the pound and opens the door to the 1.40 level. It is pretty amazing if you look at the longer-term chart, as the pound never moved above the 2009 highs. See the impending breakdown.

Click to enlarge

Be careful out there -- this US dollar strength could eventually start to weigh on the risk markets!
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Positions in DX, M6E, M6B futures.
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