Talking Points:

- Both EUR/USD and USD/JPY have reversed sharply in recent days, although neither has reached critical levels to say their trends have changed...yet.

- On the other hand, AUD/USD, GBP/USD, and NZD/USD have all started to or appear to be on the verge of more significant technical breakdowns.

- Retail crowd positioning is easing again now that the US Dollar is taking back its recent losses.

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It appears that price action at the end of last week and the beginning of this one can be characterized as a washout, or exhaustion low, for the US Dollar. After three strong days of upside action, the question has arisen again, 'is this the US Dollar bottoming process?'

Chart 1: DXY Index Daily Timeframe (July 12 to August 31, 2017)

US Dollar Reversal Gathering Pace - Key Levels to Watch

As we have done previously, it's best to let the market dictate when it's trend reversal is going to take place. After the outside engulfing bar on August 25, the DXY Index now needs to clear 93.44 before we can say with confidence that a near-term bottom has been established. Concurrently, a close through 93.44 would also constitute a break of the daily 21-EMA, which the DXY Index hasn't closed above since June 27.

Chart 2: EUR/USD Daily Timeframe (July 12 to August 31, 2017)

US Dollar Reversal Gathering Pace - Key Levels to Watch

The same can be said about EUR/USD (no surprise given that DXY and EUR/USD are basically mirror images). Price action has been weaker in recent days, but it's still too soon to say that a top is in place. Like DXY, EUR/USD hasn't closed on the other side of its daily 21-EMA since the end of June. Several tests of the key moving average occurred throughout August, but were fruitless in their attempts to break lower. It's possible that this time is different - especially if tomorrow's August US Nonfarm payrolls report comes in as strong as data ahead of time suggests it may be.

See the above video for technical considerations in the DXY Index, EUR/USD, GBP/USD, USD/JPY, AUD/USD, NZD/USD, and Gold.

Read more: Price Action is Promising, but US Dollar Reversal Not Set in Stone

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

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