The Sinking Dollar

By Colin Twiggs
August 6, 2009 3:30 a.m. ET (5:30 p:m AET)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice. Full terms and conditions can be found at Terms of Use.

US Dollar Index

The US Dollar Index is consolidating in a narrow band above 77.50 after breaking through primary support at 78.50. Expect retracement to test the new resistance level, but penetration of short-term support will signal further decline — with a long-term target of 74*. Recovery above 78.50 is unlikely, but would warn of a bear trap — confirmed if the index rises above 80.

* Target calculation: 78.50 - ( 83 - 78.50) = 74

Euro

The euro reflects the inverse of the dollar index, testing short-term resistance at $1.4450 after breaking through primary resistance at $1.43. Expect an upward breakout, indicating a primary advance with a long-term target of $1.50*. Retreat below $1.43 is unlikely, but would warn of a bull trap — confirmed if support at $1.40 is penetrated.

* Target calculation: 1.43 + ( 1.43 - 1.35 ) = 1.51

Japanese Yen

The dollar is consolidating between ¥94 and ¥96. Upward breakout would warn of reversal to a primary up-trend, while downward breakout would signal a test of the lower channel border — around ¥90*. The long term target for the down-trend is the December low of ¥87.

* Target calculation: 92 - ( 94 - 92) = 90

Australian Dollar

The Aussie dollar surged through resistance at $0.82 against the greenback, boosted by rising commodities prices as indicated by the CRB Commodities Index. Expect retracement to test the new support level, but breakout above short-term resistance at $0.85 would indicate a further advance with a target of 87*. Reversal below $0.82 is unlikely but would warn of a bear trap — confirmed if support at $0.80 is penetrated.

* Target calculation: 0.82 + ( 0.82 - 0.77 ) = 0.87

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The weirder you're going to behave, the more normal you should look. It works in reverse, too. When I see a kid with three or four rings in his nose, I know there is absolutely nothing extraordinary about that person.

~ P. J. O'Rourke