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Currency Market: US Dollar Index Pulling Back Again After Making New Highs, Trend Still Up


The euro has remained relatively weak, while commodity currencies have rallied against the USD.

MINYANVILLE ORIGINAL The US Dollar Index is pulling back for a second time this month after breaking out to fresh new highs, and it certainly seems like someone wants to fade this rally! I have been wrong when I predicted that commodity currencies would roll over, and help fuel further upside in the US Dollar Index. However, the trend remains higher, and I think the DX is getting back to a point where it is time to get aggressive again on the long side. As you can see in the below chart, the slope of the 50-day moving average is steadily increasing, and it should provide very solid support on any pullbacks below 82.50. I would use this level for the next week to aggressively add to US Dollar Index long positions. The risk reward in this market is still very favorably skewed to the upside.

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The euro has had a sharp bear market rally over the past few trading sessions, and that is the primary reason for the weakness in the US Dollar Index. It seems like politicians have been saying just about anything to prop this currency up, and I guess we should all be relieved that they will do "whatever it takes" to preserve the euro. I think a few officials said the same thing about the markets just before the 2008 disaster. The chart tells the real story -- and as you can see below, the euro remains locked in a bear market. The trend is still clearly lower, and any rally approaching 1.25 should be aggressively sold. Add to your winners!

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The British pound is probably my favorite risk reward short at current levels, and I don't mean to offend the Olympics. The "Cable" has been consolidating just below the 200-day moving average for over a month now, and I think this is a great spot to add more short exposure. As you can see in the below chart, the 50-day moving average has crossed below the 200-day moving average, thus forming the infamous "Death Cross," and aggressive shorts positions can be added here with the benefit of a very tight stop just above the 1.58 level. Ultimately, I think the British pound will trade well below 1.50, so you can see the risk reward of a short position is very favorable at current levels. Good luck out there!

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Positions in EUO, USDNOK, USDZAR, GBP futures.
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