The US Dollar Index confirmed a short-term double bottom on Wednesday and flirted with the 10-day MA before pulling back, marking the third failure at this key "fast" moving average. Generally the fourth test carries a strong probability of clearing. Meanwhile, the EUR/USD has confirmed a Head & Shoulders top by briefy probing below the neckline at 1.4115. While these patterns represent stabilization, overstretched daily studies and MACD divergence should provide support for a reversal in trend. Risk appetite remains strong, however, with the S&P 500 finding support at the 200-day MA, Crude Oil at fresh highs and Gold maintaining it's bullish structure with former resistance at 960 reverting to support.
As bearish sentiment towards the dollar continues, it is no suprise that this rebound has met a fair amount of resistance. Thus, positioning for dollar strength should be done conservatively.
There are two entry zones depending on the speed of the latest move. If the dollar quickly loses current corrective trendline support at 79.15 (or if EUR/USD swiftly clears corrective trendline resistance at 1.4215) , then the entry zone is between the 78.6 to 112.5% retracement of the latest correction. If consolidation ensues then the entry zone is between the 61.8 & 78.6% retracement. In either event, clearing the 10-day MA is the confirmation and in itself can be used as a more conservative entry point. If the 10-day MA is not breached, then the next targeted region is 77.86 for the DXY (US Dollar Index) where the December low and a key fibonacci retracement lie.
[STRATEGY] BUY USD's (SELL EUR/USD)
