US Dollar Poised to Bounce off of Lows Despite Sentiment Extremes
Forex trading crowds remain long the US Dollar (ticker: USDOLLAR) against the Euro, British Pound, Japanese Yen, Swiss Franc, and Canadian Dollar. Normally we would take this as a contrarian indicator that the USD could hit lows. Yet all eyes turn to the Dow Jones FXCM Dollar Index as it holds near critical support and could soon test range highs.
What happens next? In the absence of a major breakout or breakdown in the USDOLLAR, we believe that the Euro/US Dollar and other major pairs will stick to recent ranges. Thus we look for the EURUSD to turn off of recent resistance near the $1.32 mark.
Ultimately we may need to wait until the USD shows real conviction in either direction before taking a strong stance on major USD pairs. The USDOLLAR’s resilience at the 9900 mark suggests risks remain to the upside (downside for EURUSD), but we will need to see the US currency break critical 8-month highs of 10134 before making more aggressive calls for Dollar strength.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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