Dollar index looks bullish for short term

Bearishness or bullishness lies in the eyes of the trader. The dollar index looks bullish for the short term, but confirmed a bearish bias last month on the long-term trend.

In last week’s article we had mentioned that dollar had broken a consolidation pattern—-a symmetrical triangle—-to the down side, indicating further long-term bearishness. But last week the index bounced and a lot of you wondered if the bearish bias was misplaced.

Markets tend to move up and down even if the long-term trend is down. The dollar index hit support last week on the medium and short-term charts. This produced a bounce. Bearish traders look for such rallied to short into. We, however, think the dollar has not rallied high enough to short into. An ideal area to short would be between 78.25 and 78.90 with a stop above 79.

That level also falls at the 50% Fibonacci retracement area with the January 2011 high of 81.25 and the March low of 76.10. Prices often reverse from Fibonacci retracement levels of 23.6%, 38.2%, 50%, 61.8% and 78.6%.

Euro-dollar
The pair has been in an uptrend since the beginning of 2011 and seems to have completed its recent correction. Last week saw the EUR-USD pair correct, but had a strong bounce on Friday. The pair closed at 1.3901 last week and a close above 1.40 can take it all the way up to its next resistance level of 1.4275.

The correction last week from the 1.40 level was not due to the presence of a resistance level. Markets usually tend to react to round numbers and we believe that’s what led to the pair’s correction.

Yen tremors
The earthquake in Japan caused tremors in the USD-JPY pair but contrary to market expectation. On Friday, the pair had a nearly 200 pip fall, but stopped it’s sell off at support of 81.5. A fall in the pair is a rally for the yen. However, a worsening situation can result in a rally if the authorities ease money supply to stimulate the economy hurt by the natural calamity.

Also, note that there are several support areas in near proximity to Friday’s close, making it difficult for the pair to fall further. The support levels are 81.5, 81.10, 80.87 and 80.3.

Australian dollar-US dollar
The pair has been exhibiting relative strength to the US dollar and signaling it wants to break out of the 1.02 level. AUD-USD has hit the 1.02 level multiple times and sold off, but each time the sell off has been weaker and making a higher low. A higher low is when the latest low in price is higher than the previous low in price.
This indicates that the buyers are willing to pay higher prices. 

Additionally the pair has been falling from 1.02 as the number of sellers exceeds buyers at that level. As prices hit that level multiple times, the sellers are being depleted and eventually buyers will be successful in taking prices higher.

US dollar-rupee
The pair has been moving in a range making trading very boring. The price action does not give much opportunity for traders to profit.

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