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Currency Market: US Dollar Index Back Below 79, but Risk Reward Still Skewed Higher


Unable to rally back to 80, the DX is now less than a dollar from the 200-day moving average.

MINYANVILLE ORIGINAL Readers of my articles must think I am beating a dead horse by now, but I still think the US Dollar Index offers a great risk reward setup for long positions. The DX has pulled straight back from the 80 resistance level for a couple weeks now, and with the US Dollar Index back below 79 currently, it is less than $0.75 away from longer term support at the 200-day moving average around 78.25. This pullback provides a nice opportunity to scale into more DX long positions, and with a longer term target of 90+, you can see why I like the risk reward setup here. See the chart below:

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The Japanese yen has also been painful recently, as it has rallied a little further than I would have thought. The yen rallied even in the face of the Bank of Japan comments that most would interpret as yen bearish, but this is the type of market where what makes the least amount of sense usually happens. It looks like this last push might be spooking the last shorts out before rolling back over. Remember that the longer term trend has clearly gone negative, so I would look for this rally in the yen to run out of gas soon. It seems like the 12.50 level (which happens to be a 50% retrace) is showing resistance today.

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The Australian dollar is rolling over pretty hard today after the RBA cut rates overnight. I continue to like the risk reward of short positions in the AUD, and it has now broken back below the 200-day moving average. Currently trading around 1.035, I think you are risking a rally back to 1.05, but with downside potential to 0.95 or below, so the risk reward in short positions makes sense to me. The Aussies were early in raising rates, so they have some room to come down here. Good luck out there!

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On another note, the MTAEF eBay Auction went LIVE this morning! This is a great chance to bid on time with some of the best market minds in the business! Check out the links below, and I sincerely thank you for bidding them up for a good cause! [Editor's Note: Both Todd Harrison, Minyanville's Founder, and the author, Cody Tafel, are participating in MTAEF.]
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