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US Dollar Index Testing Critical Levels for Rally to Remain Intact


The euro is again pushing up below the 1.25 level, as risk-on markets are pressuring USD.

MINYANVILLE ORIGINAL The US Dollar Index is testing the mettle of bulls this morning as it is breaching the key 82 support level. With equities breaking out to new highs, and "risk-on" in general across the markets, it makes sense for the USD to be under pressure. We might be in store for a "Turnaround Tuesday" from current levels, so I would keep an eye on where the markets close later today.

If the DX cannot recapture the 82 level, then we will most likely see a test of the 200 day near 80.5, so I would sell up to half of any USD long positions to manage downside risk. This should still be a nice profit for those who have been in this trade for a while, since we started buying the DX in the upper 70s. See the 82 break below:

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The British pound is also proving me wrong on this move above the 200 day moving average. This looks like a strong breakout above the 1.58 level, and readers should know that it is time to cut our losses short on this move above resistance. While I still have my doubts about the potential of this move longer term, we could easily see a bear raid up into the 1.60 level.

Time to move to the sidelines, or even play the long side for aggressive traders! The longer term pattern still looks bearish to me, but the market is telling us this is not the time to be short the British pound.

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The one currency the looks like it might be about to break down against the US dollar is the Japanese yen, and this is also not very surprising given the current "risk-on" market environment. As you can see in the chart below, the USDJPY is recapturing the 200 day moving average and it looks like it's breaking out above the downtrend line from the March highs.

It looks like you could get long the USDJPY cross here around 79.50, risking 78 for upside of 84+ offers a decent 3 to 1 reward to risk trade. Good luck!

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Position in EUO
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