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US Dollar Index Needs to Turn Higher, and Euro Could Help


The currency markets remain choppy, and we are seeing consolidation before trends develop.

The US Dollar Index needs to establish some support here around the 79 level, and some consolidation would probably be a healthy thing to build up some power for a new upward trend. The 200-day moving average is starting to slope higher, and this should keep any downside relatively contained to the 78 level, just in case 79 can't hold. So needless to say, I still really like the risk reward of US Dollar Index long positions here, even though it is taking a little longer than we would like to get going. You can see the great risk reward setup in the weekly US Dollar Index chart below:

Click to enlarge

The euro will be the key to a US Dollar Index rally as it is such a large component of the index. While the euro has held in relatively well lately, it does seem like the potential head-and-shoulders top pattern could still be playing out from current levels. However, this pattern is getting close to failing, and if the euro trades above 1.34 it is probably going back to the 200-day at 1.36. So the euro needs to fail right in here to keep this view intact. See the euro shorter term chart below:

Click to enlarge

Another cross I have mentioned previously with an interesting setup is the EURGBP. It looks like there is another head-and-shoulders pattern forming in this euro cross as well, and it looks like a good short to me. Notice how after breaking the upward sloping neckline around 0.8350, the EURGBP cross has started to fail on rallies below this live angle. This pattern projects a move down to the 0.82 level so I like the risk reward above 0.8350 with a 0.84 stop. Also, if you look at a longer term chart, you will notice that a very long term trend has been broken, so there could be significantly more downside. See the short term chart setup below:

Click to enlarge

It will be interesting to see how these markets hold up for quarter end, and we might have to wait until next week and a new quarter to see which way these markets will trend.

Thanks for reading, and good luck out there!
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