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Currency Market: US Dollar Index Has Held 82 Near Term and Should Be Able to Rally Again Soon


The euro continues to be volatile, and this rally seems to have found resistance at the 1.25 level. Capital flight out of the euro should continue to benefit the British pound.

MINYANVILLE ORIGINAL The US Dollar Index has been able to hold the 82 support level on this recent pullback, and I think it shows how this is still a healthy bull market. This was a prior resistance level, and as an example of classic technical analysis, prior resistance is now becoming future support. As I mentioned a couple weeks ago, I am not sure we will see the US Dollar Index trade back below 80 for a long time now, so below 82 (and especially below 81), I would continue to add to US dollar long positions. Longer term, I think there is upside to the 2002 highs near 110 so there is clearly still a nice risk reward setup.

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The euro continues to dominate the headlines, as it becomes pretty clear that things over there are not getting better anytime soon. This uncertainty should keep the euro under pressure, and it clearly is having trouble with the 1.25 resistance level and the prior January support levels which are now acting as resistance. This market will remain susceptible to a short covering spike because it is headline driven, so I would wait for a sharp rally back into the high 1.20s before getting aggressively short the euro. However, there is still plenty of downside, but the risk reward setup is just not as favorable as it was a month and a half ago. This is the time to ride a smaller winning position, and be patient for the opportunity to get aggressive.

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The capital flight out of the euro should continue to benefit the British pound, at least on a relative basis, which is why I still think short positions in the EURGBP cross make sense. The EURGBP cross has consolidated for the past two to three weeks, and I think it is setting up as a nice risk reward short again above the 0.81 level. It has already failed back below that resistance, but with some patience I think we will get another shot to add to EURGBP short positions above 0.81. Keep an eye out for that level, as capital fleeing the euro probably continues to benefit the British pound. Be careful out there!

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