06/23 - EUR/USD, DXY rip through the 20-day MA

A confluence of technical and fundamental factors have contributed to Tuesday's decline in the US Dollar Index. Risk aversion began to ease the moment Asian equity markets closed, as downward pressure on equity futures subsided. News that a rating agency could potentially downgrade Uncle Sam's AAA rating if the U.S were to lose it's global reserve status, contributed to the first bout of dollar weakness. As a result, several leading indicators of risk appetite failed at key technical levels. Gold rebounded off a key fibonacci retracement (61.8% of the October low to the February high) and the USD/CAD rejected at the 50-day MA. The EUR/USD & DXY breached their 20-day MA's later in North American trade when ECB Weber's comments squashed any thoughts of additional quantitative easing. Since the past two FOMC's have ignited dollar sell-offs, it is not suprising that foreign currencies have been bid up going into tomorrow's meeting. While a "buy the rumor, sell the fact" scenario could be setting up, if the Fed were to dissappoint the market, there is a substantial chance that risk aversion could re-emerge. In either event, the dollar would clearly benefit. In the meantime, clearing key retracement zones at 1.4110 (EUR/USD's 61.8% retracement) & 79.83 (DXY's 50% retracement) will probably remain tough obstacles, but if cleared then focus shifts to the recent extremes seen at the beginning of June. Only a loss of the EUR/USD's 20-day MA near 1.40 (above 80 for DXY) will shift focus back towards trendline support (now located below 1.39).

06/22 - 20-day MA's hold up, Oil/Gold lose support

The US Dollar Index has benefitted from a loss of trendline support with both spot Gold and Crude Oil. Friday's rejection at the 20-day MA highlighted a failure at key psychological levels for the DXY (80) & EUR/USD (1.40) and has triggered a deeper pullback in risk appetite. Further weakness in equities and interest rates should help buoy the Greenback towards it's 35-day exponential moving average in the mid 81 region and allow the EUR/USD to retest the key 1.38 pivot, then possibly the 50-day MA further out. If the current move stalls, the 20-day MA becomes the proverbial line in the sand (now located at 80 & 1.40).

[STRATEGY] BUY USD's (SELL EUR/USD)

06/19 - DXY & EUR/USD Pressuring key trendlines

The US Dollar's recovery is beginning to stall as key market forces such as interest rates, commodities and equities have all seemed to have temporarily based since failing to extend recent losses. Despite Thursday's succesful defense of the 20-day MA and key psychological levels such as the 80 handle (DXY) & 1.40 (EUR/USD), key trendlines remain under pressure. A clean break of 80 & 1.40 will refocus last week's swing pivots (79.40 & 1.4137). A false-break, however, will refocus the 35-day exponential moving average (DXY) and the head & shoulders neckline at 1.3813 (EUR/USD).

06/12 - Pressuring the 20-day MA again

The US Dollar Index recovered off last week's short-term double bottom but has paused at the 20-day MA over the past few days. The ensuing pullback stalled at a key fibonacci retracement (61.8% of 77.94-81.36) and EUR/USD's former head & shoulder's neckline has reverted to resistance. An early indication of possible risk aversion was Thursday's reversal in treasury prices and subsequent bearish close in equities. Moreover, Gold's inability to reclaim key resistance and weakness in the Canadian Dollar (key leading indicators) have enabled the Greenback to pressure the 20-day MA at 80.25 once again. Sustained EUR/USD weakness below 1.3978 (20-day MA) would highlight a larger head & shoulders pattern and will immediately target the 1.3800 neckline.

LOOK TO SELL EUR/USD

06/04 - LOOK TO SELL EUR/USD

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)

05/29 - Improved risk appetite crushes the Greenback

The US Dollar Index started to show signs of improvement as key levels held and bullish MACD divergence signals began to materialize. Thursday's morning reaffirmation of New Zealand's credit rating eased risk aversion, causing the Greenback to reject at the 10-day MA once again. The successful 7-year auction reversed sentiment on Wall Street enabling risk appetite to flourish. The follow-through in Asian trade allowed the EUR/USD to clear a corrective trendline, causing the dollar to collapse to fresh lows.

As mentioned before, a failure at a fast moving average (such as the 10-day MA) and a quick retracement to new lows indicate that the DXY (US Dollar Index) is still in a dangerous mode of capitulation. Although, daily studies remain oversold, generally a selling climax is required to exhaust the selling pressure. In the meantime, until the 10-day MA is cleanly broken, levels to watch are: 78.89-99 (projection cluster), 77.69-89 (fibonacci retracement/December 2008 low) and 74.70-79 (fibonacci cluster).

05/22 - Dixie (DXY) down and out?

The US Dollar Index ended the previous week with hopes of marking a bottom. However, a renwewed improvement in risk appetite on the back of Monday's election results in India caused the Greenback to reject at the 10-day MA. Failing at a fast moving average after such a sustained period of weakness and the inability to regain the keenly watched 200-day MA suggested that the dollar was about to enter a period of capitulation.

Wednesday's FOMC minutes which pointed out that the Fed would up the level of quantitative easing added pressure to the DXY (Dollar Index) and Thursday's stingy coupon pass spooked the bond market. The subsequent buyback announcement reminded markets of the government's massive debt obligation, causing investors to ponder Uncle Sam's AAA credit rating.

While sentiment towards the dollar remains extremely bearish, several technical indications hint at a possible reversal. First, seasonal factors that usually cause the buck to fall throughout April then recover in early May were delayed and could now materialize to help buoy the currency going into June. Moreover, the adage "sell in May then go away" could be coming to fruition as the Dow Jones Industrial Average just confirmed a double top formation on Thursday. Although, the normal correlation between risk aversion and dollar strength decoupled this week, this should be a temporary phenomenon and further equity weakness will boost the dollar going forward. Second, virtually every daily study remains at oversold levels and MACD is indicating possibe bullish divergence. Last, according to Elliot Wave analysis, a symmetrical zig-zag correction has been completed.

In capitulation type sell-offs, typically a reversal day (ie, a lower low with a bullish close) is required to exhaust the selling climax. If key levels such as 80 and 1.40 hold for the DXY and EUR/USD, respectively, then an inside day (price range is entirely within the previous day's price range) followed by an accumulation pattern should fullfill the requirements for building a base. Eventually, the clearance of the 10-day MA is required to stabilize the current selling pressure. In the meantime, any counter-rally that is followed by a quick retracement to new lows should serve reason for dollar bulls to be cautious.

[STRATEGY] LOOK TO BUY (SELL EUR/USD)