Dollar Faces Watershed

By Colin Twiggs
August 13, 2009 2:30 a.m. ET (4:30 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 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

Euro

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

Japanese Yen

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.

Australian Dollar

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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