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)

04/09 - Defies bearish seasonal forces

The US Dollar Index has rebounded after failing to sustain losses below the 84.30 pivot and highlights on-going support via the 160-day MA. This has enabled a push above the mid-level threshold of MACD and a downward sloping RSI trend line. This zig-zag formation has found support from the former resistant 20-day MA, but will have to clear the bull-bear 50% retracement zone at the 86 handle to further defy bearish seasonal forces. A sustained loss of the 100-day MA should re-open key 160-day MA support then the 200-day MA.

{STRATEGY} LOOK TO SELL (BUY EUR/USD)

04/02: April seasonal patterns

The month of April has historically been unkind to the US Dollar Index. Over the past seven years, the Greenback has seen gains in April only twice, both times were supported by either Fed tightening, hawkish rate expectations or both. Both seasonal charts shows that on average, the dollar tends to fall throughout the month then bottom out in early May. April also tends to be one of the strongest seasonal months for the DJIA and S&P, both of which have had strong inverse correlations with the US Dollar Index. These seasonal factors alone suggest that a sustained loss of 84.30 (former consolidative resistance) will enable the dollar to test the key 200-day MA.

STRATEGY: SELL USD's

3/31: Yen retreats on Japan's last day of fiscal year

03/27 - Probing a key fib & the 100-day MA

The US Dollar Index has pared recent losses and is now probing a key fibonacci retracement (38.2%) and the 100-day MA. Overbought daily RSI & MACD along with hourly bearish divergence have induced profit-taking in energy (crude oil) & equity markets which have had strong inverse correlations with the Greenback. Dollar bears that had jumped on Geithner's misconstrued comments earlier in the week were further squeezed as the euro suffered it's largest one day drop in more than two months. Bearish comments by a German Fin Min and expectations that the ECB may accept QE policy after all, helped the dollar surge through the 10-day MA and a descending trend line. While FX markets should continue to follow developments in the global equity markets, if the US Index clears the 38.2% retracement/100-day MA, then the 20-day MA and 35-day EMA should provide decent resistance. If this counter-trend rally in the US Index begins to distribute, a sustained loss of 84.30 (former resistance) will expose the 200-day MA.

03/19 - DXY collapses on the back of Fed's QE policy

The US Dollar Index has collapsed as a result of yesterday's decision by the Federal Reserve to purchase long-term US Treasuries. Although this significantly nullifies the threat of deflation, the Fed's decision greatly enhances their debt load and will significantly increase the budget deficit. The Greenback's weakness is now approaching a cluster of fibonacci retracements in the 82.25-40 region (the 38.2% retracement of the all-time low to the March high & the 61.8% retracement of the December 2008 low to the March high). Further beneath lies the key psychological 200-day MA. Expect weakness to persist while below the falling 10-day MA & a descending trendline in the mid 85 region.