Do not go long till dollar is firmly in support zone

The range-bound dollar index sold off from resistance as we predicted last week and is now resting near its support level.
The dollar index has been moving in the range of 78.75 and 81.50 since late November (see chart below). In last week’s article we had mentioned that we preferred a bearish bias as the index was at a resistance level of the range. Last Friday, the index came down to its support level at 78.75 and closed a little higher at 79.16.

The support range on the dollar index is quite wide between 78 and 78.75 and may take some time to break through. However, the level was hit the third time last Friday, essentially making it weaker. More times a support or resistance level is hit, greater the chances of it breaking through. The resistance level on the other has been hit only twice.

Since the support level has been hit three times, we should be cautious going long.

We would wait for the dollar to penetrate deeper into the support zone of 78-78.75, before going long, with a stop little below 78. The other option is to go long once the dollar closes above Friday’s high with a stop below Friday’s low. The high for Friday was 79.41 and the low was 78.81.

US dollar-rupee
The USD-INR pair has been moving in a one rupee range between 44.5 and 45.5. The 45.5 level has been hit a few times, which means we could get a break out if the dollar index rallies from its current level of support. The next level of resistance for USD-INR is at 46 followed by the range of 46.75 and 47.

The range between 43.85 and 44.50 has been providing good support to the pair and needs to be broken for the pair to fall further.

British pound-rupee
The British pound has been rallying strongly against the rupee this month. The GBP-INR pair which was in the 69.20 level in early January rose all the way up to 72 last Friday. The pair is now near a resistance level of 72.25 and 72.5. Investors long on the pair should book profits and initiate short positions. It’s possible for the pair to break the resistance level and go up to the next resistance which is pretty close at 73-73.5. In any case now is not the time to go long on the pair.

Euro-rupee
EUR-INR broke out of its resistance level of 60.41 and seems headed for the next resistance level in 61.75-62 area. The pair has rallied strongly in January from the 58.50 level and has broken two resistance levels, one at 60.41 and the other at 59.80. The power of the rally may be able to push the pair all the way to the 61.75 level.

Euro-dollar
As the dollar index hits support, EUR-USD hit resistance at the 1.3425-1.35 level. Last Friday the pair hit the resistance area and sold off. However, the resistance level has been hit four times and a possibility of a break out is high.

In case the level is broken, the pair has the potential to rally all the way up to 1.3750.

A sell off can take the pair down to 1.31, which if broken can result prices fall to 1.2885. Note that the pair has been range bound just like the dollar index. Hence unless the support or resistance level is broken we’ll see more range bound trading.

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