07/08 - Yen prevents DXY from breaking trendline

The US Dollar Index continues to probe a 4-week trendline at 80.86. While the Greenback traded higher against most currencies on Wednesday, the main reason it has not breached key resistance is due to Yen strength. Increased risk aversion, highlighted by equity weakness (specifically the confirmation of distribution patterns) has allowed the Yen to flourish in this enviroment. Meanwhile, the EUR/USD has retreated below the 35-day EMA & 23.6% retracement zone at 1.3907, but has paused at 1.3839. This pivot point coincides with a fibonacci retracement of the latest range (78.6% of 1.3737/1.4170) and the 50-day MA. The clearance of 1.3839 and 80.86 immediately exposes 1.3724/83 (EUR/USD's former swing high/38.2% retracement level) and 82.68 (DXY's 38.2% retracement) .

07/07 - EUR/USD fails at former trendline

As risk aversion rears it's ugly head, the US Dollar Index continues to benefit. Although, foreign exchange markets remain mired within relatively tight ranges, energy markets have pulled back quite significantly. The reversal in risk appetite has enabled several equity indices to probe below their head & shoulder necklines, reaffirming a medium-term top in the stock market. Meanwhile, the EUR/USD reversed course at former trendline support, highlighting a bearish rejection and a possible shift in sentiment. Dollar bulls will now look to clear 80.75/86, where 4-week trendline resistance and the 35-day EMA lie (also correlates to the EUR/USD's 35-day EMA & 23.6% retracement level near 1.39). Clearing these key pivots will suggest that the Greenback has temporarily bottomed and initially targets 82.68 (38.2% retracement) and 1.3724/83 (EUR/USD's former swing high/38.2% retracement level).

[STRATEGY] BUY DXY (SELL EUR/USD)

07/06 - EUR/USD & DXY break key trendlines

The US Dollar Index has remained fairly strong on the back of last week's worse than expected jobs report. The reemergence of risk aversion has allowed key fibonacci retracement levels (DXY's 61.8% of 78.31-81.35 & EUR/USD's 78.6% of 1.4326-1.3745) to remain intact and has triggered a breach of 10-week trendlines (both DXY & EUR/USD) . The follow-through, however, has been very limited and the 23.6% retracement levels and 35-day EMA's have proven to be significant obstacles. More importantly, the EUR/USD remains entrenched in between two major retracement levels at 1.3737/1.4170 (38.2% & 50% of the entire 2008 range) and is entering a period where volume tends to dry up. In the meantime, the currency markets will take their cue from equity markets (such as the DJIA and S&P 500), which are testing their head & shoulder necklines.

07/02 - Through key trendlines targets key fib's

07/01 - Key fib's vs trendlines

06/30 - Dollar ends the quarter on a high note

The US Dollar Index ends a brutal second quarter on a bright note. The main perpretrator was the British Pound and it's volatile reaction to economic data, which triggered a false-break of a 4-week wedge formation. This highlighted the EUR/USD's inability to clear the 1.4137 pivot and allowed the Greenback to maintain support at a key fibonacci retracement at 79.47. The weaker consumer confidence number in North American trade spurred renewed risk aversion causing commodities, equities and foreign currencies to retreat even further. The 80.52/64 (DXY) and 1.3980/90 (EUR/USD) regions have become the next focal points (where key trendlines and 10/20-day MA's reside). If these levels are maintained, then attention remains squarely on 1.4137 & 79.47. A sustained clearance, however, will refocus former fibonacci pivots at 80.864/ 1.3839 and signals a possible medium-term bottom in the dollar.

06/26 - Watch key fibonacci retracement zones