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Currency Market: US Dollar Index Has Found Support Below 80, but the Trend Has Turned Lower


The euro outlook has clearly improved, and the weaker USD has fueled the risk-on move lately.

MINYANVILLE ORIGINAL The US dollar has clearly rolled over, and while there is a possibility that this could be a head-fake, I think we must respect the market action here, which is signaling further USD weakness. The 200 day moving average is starting to flatten out near 81, which is about a point higher than current market levels. I think the 81 level will be critical to watch in the coming weeks, as it will most likely cap any further US dollar bounce. The Fed clearly wants to keep rates low, and this will not provide a bid for the USD. Unless the DX can quickly retake the 82 level, I think the risk now lies back to the downside near last year's lows around the 74 level. Short term I would sell rallies into 81…see the chart below.

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The euro rally has obviously been a primary factor in the US dollar sell-off. The euro rallied from 1.21 to 1.31 in less than two months, and it actually looks like a buy here on this pullback below 1.30 as the 200 day moving average should provide near-term support. If this past two weeks trading is just a consolidation pattern, then we could make a case for another euro rally starting around these levels and moving into the upper 1.30s. This could certainly help keep the risk-on bid going in the market as we head into year end. It looks like momentum could turn higher here soon, and I would start watching the now-rising 50 day moving average as a nice level to use as a stop on long euro positions.

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One currency that is having an interesting outlier move today is the Australian dollar. The RBA surprised with a rate cut overnight, and the AUD is the only major currency that is significantly weaker against the US dollar. This is causing the AUDUSD cross to break below the 200 day moving average and the 1.03 support level. Next stop will probably be parity with the US dollar, and it now looks like you can go back to selling rallies in the Australian dollar above 1.03. Going forward we can use a 1.05 stop on AUDUSD short positions and this currency could clearly trade back below parity to the US dollar. Good luck!

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