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US Dollar Finds Support, Bias Is Bullish

US Dollar Finds Support, Bias Is Bullish

2014-05-12 13:49:00
Paul Robinson, Strategist

Talking Points:

  • Dollar finds major support from two different angles
  • At the least, higher in the near-term most likely
  • Selling USD-based pairs – EUR/USD, GBP/USD look like good ways to play

Last week brought some much desired fireworks to the FX market, creating a few interesting scenarios. There was a lot of chatter surrounding the breakout, fake out in the Euro, caused by Draghi and Co. The Euro went from a bullish breakout to a bearish breakdown in one fell swoop.

The Euro wasn’t the only one to get rejected at new highs, I’m looking at you Cable (GBP/USD). Both the Euro and Cable are trading near major long-term levels: 1.4000 EUR/USD (by a 6-year trend-line from 2008 highs) and 1.7000 GBPUSD (the level goes back to 2009, 2005, even the late ‘90s).


US Dollar Finds Support, Bias Is Bullish

Charts created by Paul Robinson using MarketScope 2.0.

This brings into my crosshairs the Dollar Indices – $USDOLLAR (DJ FXCM Dollar Index) and $DXY (Ice U.S. Dollar Index). $USDOLLAR had a weekly reversal off 1-year horizontal support as well as a trend-line extending back to August of 2011. This confluence makes 10370/55 a critical area. A descending trend-line back to July of 2013 then crossing over the January highs is creating a massive triangle.

$USDOLLAR - Weekly

US Dollar Finds Support, Bias Is Bullish

There are three scenarios of which one will likely play out:

1. The Dollar continues wedging itself for a while longer into a tightly coiled triangle, set to break out one way or another a little later in the year. (Short-term move would be higher.)

2. It gathers momentum in the near future and barrels right through the descending trend-line with little pause.

3. The low last week turns out to just be a minor bounce off support and the trend lower in the Dollar resumes shortly with EUR and GBP set-backs turning out to only be minor bumps in the road.

It seems at this point the first two scenarios are most likely, so I will play it out as follows. Initially give last week’s lows the benefit of the doubt and look for bearish set-ups in USD based pairs – right now, namely – EUR/USD and GBP/USD and their respective crosses. I am curious to see how USD/JPY responds to a broad Dollar rally. If we go into any type of real ‘risk-off’ mode, then USD/JPY will likely sell-off while strength in the Dollar is exhibited elsewhere. So, for now, I will focus my efforts on set-ups which have a bullish bias.

--Written by Paul Robinson of

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.