09/12/2014: Ready to pull the trigger on long USD dollar positions once again

Dollar strength has been a key feature of markets in recent weeks. The correction we have seen over the past couple of days has not been driven by anything significant. There has been a slight dip in Treasury yields amid a slight push into safer haven assets (after such disappointing data from both China and Japan), but this move has not made a significant impact that would suggest there is a change of outlook underway.

In fact if you look at the Dollar Index (.DXY) the move has simply unwound the greenback to the support of the uptrend channel breakout. Interestingly also the correction has bounced from just above the previous breakout resistance at 88.708 this morning. This should mean that this move is subsequently seen as another chance to buy once more.

DXY   09122014

Look across the major pairs, the unwinding move comes as a retracement into a level at which we can think about going long the US dollar once more.

On EUR/USD, the key breakdown level of $1.2357 which had been a strong support now becomes the basis of resistance today. The rebound from yesterday’s low at $1.2245 has hit a peak at $1.2367 this morning and this seems to be around where the buying pressure is struggling once more. This also marks the bottom of a resistance band towards $1.2390. I see an ideal stop for any near/medium term short positions on the euro coming above the key lower high at $1.2456.

Sterling is another major currency that has looked to engage a rebound versus the dollar, however, once more looks to have just run out of steam. The rally from yesterday’s low at $1.5539 has simply unwound the rate back to a downtrend that began on 28th October. Furthermore, the move looks to be fairly typical of the 150/200 pip rallies within the downtrend that Cable has periodically experienced over the past 5 or 6 weeks. I believe that a good stop for near/medium term short positions on Cable comes in above $1.5725.

Additionally, Dollar/Yen has corrected over 2 big figures this morning on its way back towards a corrective low at 119.52. Once again though the move has unwound the rate back towards an uptrend in place since 4th November, an uptrend that has recently been flanked nicely by the support of the 200 hour moving average (currently at 119.52). With support beginning to form, this looks like a great opportunity to buy USD/JPY for a retest of the 121.84 high once more. The support comes in at 119 and around 118.50.

Although the gold price has been fairly indecisive in its direction over the past week, I still see this as a near term consolidation. The bulls are doing a good job of fighting against the selling pressure but remaining in the downtrend channel suggests that the medium term outlook is still negative. I am still concerned that with a new steeper downtrend having formed the failure to break back above $1221 will weigh on the outlook and traders will ultimately view this as another rebound to sell into.This all still ties in with my strong US dollar argument and if the dollar rally continues to play out as I anticipate then then downside in gold should continue in due course.

There is little real economic data to move markets this afternoon, however there are increasing rumours circulating that the Fed could be close to taking another small hawkish step towards tightening. There is talk of the committee potentially removing the words “considerable time” from the FOMC statement. This would be a hawkish intent that would help to drive the renewed dollar strength. The charts are also in a position to drive this move with renewed potential.

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