The FXCM US DOLLAR Index (equally weighted basket of USD versus EUR, JPY, GBP & AUD) has had several good chances to breakout over the past few weeks, but has failed at every opportunity. In our view, the longer it sits here without breaking out the greater the risk of a sharp correction. Failure this week to generate traction above the 78.6% retracement of the April – May decline around 12,050 would be a clear warning sign that USD is getting into a spot of bother. A key pivot in the event of a topside failure remains the late July low at 11,965 as weakness below there would signal that a high of some significance is in place. Through 12,050 exposes the April highs.
Still short EUR/USD with a trailing stop now over 1.1100 (closing basis). Will look to add to position on a daily settlement below 1.0800
