Dollar breaks resistance and corrects

The dollar index broke out of resistance with strength and corrected back to the former resistance area of 78.50. Previous resistance areas often act as support for the next leg of the rally. On Friday, the index closed right at the former resistance area of 78.50 and the markets are testing if it will act as support. For dollar bulls who missed the rally, this would be the opportunity to go long with a stop below 78. The index does have some minor resistance levels at 79.50 and 80, but the key level is higher at 81.25. In case the current support on the dollar index fails, the next level of support is the 77.50 area. Remember that the dollar index is bouncing off a long-term support of 75.50, which formed in late 2009. The 75.50 level also coincided with the bottom trend line of the symmetrical triangle that we mentioned in the previous articles.The symmetrical triangle borders the tightening price action of the dollar index. As long as the index stays within the triangle, one can sell the dollar at the top of the triangle and buy the currency at the bottom of the triangle. If the dollar breaks out of the triangle, it will pick up a long-term trend in the direction of the break.Dollar-Rupee A look at the USD/INR chart shows a minor resistance area for the pair at 45.65. The next resistance areas are 46, 46.75 and 47. Note that the pair is expected to be in the range of 44 and 47.50 for sometime. In case of the break of the 47.50 level, the pair can go all the way up to 48.75. The pair has been rallying as predicted a few weeks back in this column from the strong support area of 44.Dollar-Yen This pair has finally got a decent bounce rallying from all-time lows of 80.25. The interesting aspect of the rally is that prices have moved up steadily, indicating strength. Rapid rallies or sell-offs are often met with an equally strong retracement. This time, however, the rally has been slow forming support areas along the way, which makes it difficult for bears to push prices down. Also, the pair is now above its 50-day exponential moving average, which is also bullish. The bulls, however, would have greater conviction if the moving average too sloped up. Right now, the average has moved flat and stopped pointing down. The next major resistance on the pair is in the 85.50 area, the level to which the pair had rallied after the recent intervention by the Japanese central bank. A pullback to the 81 level would be an excellent area to buy for a swing trade.Euro-Dollar EUR/USD bounced a little this week after a huge sell-off, which took it below the 50-day exponential moving average. On Friday, the pair closed slightly above the moving average. The average itself has turned flat after a long uptrend. A good area to short the pair would be in the 1.3780 with a stop about 1.3825.The writer is editor, www.capturetrends.com, and based in Chicago.