Dollar Faces Watershed
By Colin Twiggs
August 13, 2009 2:30 a.m. ET (4:30 p:m AET)
US Dollar Index
The US Dollar Index is retracing to test the watershed support level at 78.50. Respect of support would be a bullish sign, strengthened if the index reverses above 79.50, while failure of support would warn of a primary down-swing to 74*. In the longer term, breakout above 81 would complete a double bottom with a target of the March low at 83.
* Target calculation: 78.50 - ( 83 - 78.50) = 74
The euro retreated from resistance at $1.44, but the up-trend remains sound — provided support at $1.40 holds. Breakout above $1.44 would signal a primary advance with a target of $1.50*. Failure of support at $1.40 is unlikely, but would warn of a bull trap; and penetration of $1.38 would offer a target of $1.32*.
* Target calculations: 1.44 + ( 1.44 - 1.38 ) = 1.50 and 1.38 + ( 1.44 - 1.38 ) = 1.32
The dollar broke through resistance at the upper trend channel, warning of trend weakness, but reversal to a primary up-trend would only be confirmed by a higher low (above ¥92) followed by a new high. Reversal below ¥94 is unlikely but would indicate a false signal — and a test of the lower channel border around 90.
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The Aussie dollar is retracing to test the new support level at $0.82 against the greenback. Respect of support is likely and would indicate a swing to the upper trend channel — around 90. Failure of support is unlikely, but would warn of a bear trap; and reversal below $0.78 would signal a primary down-trend.
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