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US Dollar Index Looks Like a Buy, and It Could Be Time to Get Aggressively Long


DX June futures look like a great risk-reward buy here at the 80 level. Is it time to short the euro?

The setup in the US Dollar Index looks very interesting on this pullback today, and I think it could be time to get aggressively long the US Dollar. June DX futures are currently trading right around 80, and I really like the risk-reward of long positions at these levels. I think you are risking a move back below 79, with upside potential of 90 and over 100 longer term. I'll take that trade any day, and this trade should also offer a nice hedge if we do see equities start to top out here in March as traders start to lock in profits after what has been a great start to the year. Check out the long term chart below.

Click to enlarge

The euro is obviously a key factor as it is a large weighting in the US Dollar Index. So for this DX trade to work out well, then we should look for the euro to roll over here. It actually looks like the euro is forming a short-term head-and-shoulders top, and a break back below the 1.30 level would probably be the nail in the coffin for the euro currency. Breaking that level would project to 1.25 which would take the euro to fresh lows, so I like the risk-reward of euro short positions here as well (chart below).

Click to enlarge

The British pound is also rallying into resistance, and it kissed the underside of the 200-day moving average this morning. A reversal here would also bode well for a DX long position, and the longer term chart of the British pound actually looks even worse than the euro. I have a hard time seeing the British pound trade much higher than 1.60, and with potential downside easily in the 1.40s, I like the risk reward of short positions here as well. See the GBPUSD chart below.

Click to enlarge

The last thing holding the DX back from the start of a big rally is the strength in the commodity currencies. That will be a clue worth watching in the coming weeks, and if we start to see the Australian, Canadian, and New Zealand dollars roll over, then that could really kick off a move higher in the US Dollar Index. We'll see what happens, but it sure seems like this is one of those times when the reward of betting on a rally in the US Dollar is well worth the potential risk. Good luck!
Positions in DX Futures, EUO, EURUSD, GBPUSD, EURGBP
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