So much for the dollar being “…poised for additional gains, especially versus the euro.” Instead of slowly grinding higher over its 50-day moving average (DMA), the U.S. dollar index failed its test of this important resistance line. Now another test of the 200DMA is right around the corner.
*Chart created using TeleChart:
Most of the big economic news next week will come from overseas, so it will be interesting to see whether the entire dollar index will experience any net movement by week’s end. Kathy Lien from FX360 gives a great rundown of the fundamental setup in “Who Wants to Buy Dollars“?
I have now closed out most of my dollar short positions and am bracing for a potential euro test of resistance versus the dollar at 1.30. As I have stated before, I will ultimately follow the “winning direction” of any test of the 200DMA given this moving average’s extreme importance in trading the dollar over the past several years. (The successful test of the 200DMA last month was a huge winner). Until the dollar confirms a break below the 200DMA, my working assumption is that the euro will resume its decline against the U.S. dollar in short order.
Be careful out there!
Full disclosure: short EUR/USD