Greenback probes deeper into support level, $ bears warned

The dollar index has fallen deep into a support area warning greenback bears to be cautious. Last week the index attempted to rally from support only to sell off.

In case the dollar index closes below 78 it can head lower to the 76 level. On Friday the index closed at 78.12. We had mentioned last week not to go long on the dollar unless the index penetrates deeper into support. The other option we mentioned was to go long once the dollar closes above Friday’s (January 14) high with a stop below Friday’s low. The high for that Friday was 79.41 and the low was 78.81.

The dollar index never closed above the January 14 high, but now it has gone deep into the support level to warrant going long on the greenback with a stop below 78. A break below 78 can take the index to 76, but only after clearing a few support areas of 77.50 and 76.75.

Euro-dollar
EUR-USD is near a minor resistance level of 1.3625, with the dollar index at major support. This is a good confluence to short the pair with a stop above 1.3635. It is relatively low risk play. A break of the 1.3625 level can take the pair all the way up to 1.3750.

Dollar-yen
The USD-JPY pair continues to be bound in a 400 pip range for a few months now between 80.50 and 84.50. It has to break the range to find direction. We would wait for the pair to hit the 85.71 level for taking a short position.

Dollar - Swiss franc
Gold and the Swiss franc are closely related. With the gold in a corrective mode the Swiss Franc has also fallen giving the dollar a boost. Even though the dollar index sold substantially, the USD-CHF pair did not see a corresponding sell off. However, the future is unclear for this pair. To trade this pair we would just look at its support and resistance levels and give less importance to other co-relating markets. The resistance on this par is near the 1 level and support near the 0.9350 level.

US dollar - rupee
The USD-INR pair finally broke out of the 45.5 level which had been hit a few times. This is despite the fact that the dollar index fell, showing relative weakness in the rupee. The weakening of the rupee can be attributed to the high inflation in India and also foreign investors pulling money out of the country. A rally in the dollar index from its current level of support could lead to a further weakening of the rupee. The next level of resistance for USD-INR is at 46 followed by the range of 46.75 and 47.

(The writer is editor, www.capturetrends.com, and is based in Chicago.)