Now THIS is the way to start a relief rally. The U.S. dollar index surged on Wednesday 1.84%, marking its largest one-day gain since a 2.72% gain on January 20, 2009. At that time, the dollar was in the middle of a sharp and major bounce off its 200-day moving average (DMA) support on its way to three-year highs. This latest surge decisively pushed the index away from the 200DMA.
*Chart created using TeleChart:
The euro suffered the majority of the dollar’s beating with over a 2% drop against the U.S. dollar whereas the Japanese yen was almost as strong as the dollar.
The market has now finally made clear the “winning” side of the 200DMA support for the dollar index, so I am largely sticking by my positioning for a dollar relief rally (click for more details). However, this large move did compel me to lock in profits on long yen hedges and to build more short U.S. dollar positions. I added to long Australian dollar positions and initiated a fresh long on the British pound which got “close enough” to tagging the lower end of its bullish upward channel against the U.S. dollar. Assuming the dollar continues to rally, I will gradually change the balance of my position from net long the U.S. dollar to neutral – hopefully around the next line of resistance at the declining 50DMA.
Be careful out there!
Full disclosure: short EUR/USD, long AUD/USD, GBP/USD, USD/JPY