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Currency Market: US Dollar Index Still Looks Like Good Risk Reward on the Long Side


The euro is challenging key resistance at the 1.32 level, and the Aussie dollar and yen should also fail here.

MINYANVILLE EXCLUSIVE: The euro has drifted higher into the key 1.32 level, which I think should provide pretty heavy resistance here. This should help put a bid under the US Dollar Index at these levels, as the risk reward for euro short positions looks very favorable. While it does seem like the negative headlines coming from Europe have abated, longer term there are still plenty of issues, and the euro remains in a negative trend. See the nice short setup into the 50-day moving average resistance level below.

Click to enlarge

The Australian dollar has also been in a clear negative trend since it peaked at the end of February. Overnight, the Australian CPI came in below expectations which could give the green light for rates to get cut there next week. This is another bullish US dollar data point as the Australian dollar has been a favorite as a "risk on" carry-trade play. Notice in the chart below how the AUDUSD has been unable to recapture the 200-day moving average, and the shorter term 20-day moving average is now pushing this market lower. I continue to think you can short the Australian dollar on rallies.

Click to enlarge

The Japanese yen has also had a nice relief rally after breaking major long-term trend lines earlier this year. I think there is a longer-term secular change underway in this market, and this recent rally makes for a nice entry into yen short positions. We could see a classic carry trade unwind in this market, and you can see why in the weekly chart below. There has been a clear uptrend since 2007, so there is a lot of time and price making this longer-term trend line break a very serious development. Good luck!

Click to enlarge
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Positions in EURUSD & JPY futures.
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