Dollar-rupee pair falls from resistance

The dollar index sold off from the resistance area of 81.25 to 81.60 identified in this column last week.

By Friday last week a lot of market players were turning bearish on the dollar after the fall. The time to turn bearish on the dollar was at the resistance zone of 81.25 to 81.60. People turning bearish now are just chasing the market.

Prices closed last Friday in the 79.15 area, which is between major support and resistance levels. There is a minor support at the 78.50 level followed by a strong support level in the 78 area.

Prices had rallied after gapping down into the 78 level, which shows strong demand for the greenback at that level. Traders already short the dollar can move their stop loss levels at the 80.40 level.

Readers will recollect that there was a lot of talk last week about a weak Euro due to the debt crisis, leading to further gains in the greenback.

The turning points in any market are the areas where demand and supply are out of balance.

For the dollar index the range between 81.25 and 81.60 was a level from where prices fell in late September this year.

The fall in prices was a clear indication that sellers exceeded buyers at that level. So when prices reached that level again last week, it turned despite the euro debt fears.

Our study of the markets over the past several years has shown that prices always turn at areas of demand-supply imbalances.

Once prices have moved away from the area of imbalance, experts assign fundamental reasons for the rally or sell off. The ability to identify areas of imbalances increases the profit potential of trading and investing substantially.

Dollar- rupee
As we had predicted the dollar-rupee pair hit resistance at the 46 level and sold off. The area of strong support now is in the 44 to 44.50 level. The fall of the dollar-rupee pair is in line with the sell off of the dollar index. Right now the pair is between support and resistance, which is a no trade zone and price can move either way. We would wait for the pair to reach support at 44.50 before buying or resistance at 46 before buying.

Other dollar pairs
The euro-dollar and dollar-yen pair followed the dollar index resistance level; more than they followed their own support and resistance levels.

The euro being relatively weaker than the index fell 100 pips below its support level of 1.3070. The yen pair too did not reach its resistance level of 85.70 and turned much ahead with the drop of the dollar index.

The Australian dollar is relatively stronger than the dollar index. Hence for traders wanting to bet against the US dollar, the Australian dollar is a good bet. For traders betting on the dollar, selling the euro is a good bet.

Traders should also keep an eye on gold and silver, which are testing their all time highs. A further weakness in the dollar can take the precious metals to new highs.

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