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Currency Market: US Dollar Index Should Have Very Solid Support Around 82

Cody Tafel

The US Dollar Index is pushing below the 82 level, which I think should be very solid support. The November 2012 high was 81.5, so I would be an aggressive buyer of DX as it sells off below 82 today. The 200-day moving average support is also just above 81, so I think you are risking less than a dollar here for three or more on the upside. If I am correct about the current DX setup, this is a great low risk buying opportunity for a move that could potentially target 90 and higher. See the chart below.

[More from Minyanville.com: Currency Market: US Dollar Index Is Consolidating Above the 82.5 Level ]

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This sell-off in the US Dollar Index has been driven by strength in the euro this morning, and I think the euro is rallying into a good risk reward spot to add short positions. It looks like the euro could be in the process of forming a head-and-shoulders top, which would target a move back down to the 1.20 level. With the euro currently trading just below 1.32, I think you are only risking 100 pips at these levels for a potential move lower of over 1000 pips. I'll take a 10 to 1 reward to risk ratio trade any day!

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The British pound also looks like a good risk reward short at current levels, as this bear market rally has brought it right back up to the lows of June 2012, which should be heavy longer term resistance. Like the euro, this is another trade where I think you are risking only about 100 pips from current levels, and if it does roll over here, there is a lot of room on the downside! See the chart below, and stay safe out there!

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