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Talking Points:

- All four components of the USDOLLAR Index are moving in tandem.

- Global equities rally as Yen, precious metals weaken.

- As FX market volatility stays elevated, it's a good time to review risk management principles.

While the USDOLLAR Index has been in recovery mode for the past week after the Federal Reserve signaled it would only aim to raise rates twice this year (as opposed to the four times outlined in December), there's still much work to be done before we can say with a greater degree of certitude that the "low" is in.

Certainly, we're not without a strong fundamental opinion on the US Dollar, which is why sticking to the technicals - and avoiding any cognitive or emotional biases - is so important. With the goal of trying to stand aside from the obvious emotional reaction, it's crucial that traders monitor retail crowd positioning over the coming days.

Chart 1: USDOLLAR Index Daily Chart (March 2015 to March 2016)

USDOLLAR Index daily chart

From our perspective, the technicals are saying that "the USDOLLAR Index is in the midst of a short-term rebound amid a potential longer-term topping effort." The break from the May 2015 uptrend remains valid, while the potential head & shoulders pattern still calls for a decline to the measured move near 11700. Similarly, daily MACD and Stochastics are both nestled below their respective signal and median lines.

What would negate this countertrend/neutral view? Ideally, for trend to pick back up. In context of recent price action, that means that the USDOLLAR Index would have to turn away from its mid-February swing low and daily 21-EMA, which are both coming in between 12000 and 12012 today, constituting signficant overhead resistance. Only in the event that we see a weekly close through said levels - and concurrently, seeing the daily MACD and Stochastics turn higher - would we be willing to look at the USDOLLAR Index from a more bullish perspective.

See the video (above) for technical considerations and trade setups in EUR/USD, AUD/USD, GBP/USD, USD/JPY, SPX500, Crude Oil (USOIL), Gold, and the USDOLLAR Index.

Read more: GBP-crosses Eye Next Leg Lower; CAD Eagerly Awaits Budget

--- Written by Christopher Vecchio, Currency Strategist

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