In our opinion the following forex trading positions are justified - summary:

• EUR/USD: short (a stop-loss order at 1.1445; the downside target around 1.0938)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

While in most Forex Trading Alerts we focus on individual currency pairs, today we decided to focus on the USD Index that covers most of them in order to look at the broader picture and make sure that we “don’t miss the forest for the trees”.

Let’s take a look at the charts (charts courtesy of http://stockcharts.com).

The long-term picture for the USD Index is very bullish. USD broke above the critical long-term resistance (at about 92) several months ago and it spent these months consolidating. The USD Index even moved back to the previously broken resistance levels and verified them as strong support. The first move to these levels was seen earlier this year, but while the move was significant enough to correct the previous rally in terms of price, it wasn’t significant enough in terms of time. Consequently, it’s no wonder that the USD Index continued to trade sideways and even moved temporarily to its 50-week moving average.

The important thing is that the key support levels held. Since the move that we saw before the consolidation is likely to be similar to the one that will follow, the next long-term price target is… about 118. Yes, 118. We realize that it seems unlikely, but… So was the USD Index at 100 in April 2014 – and yet it happened.

What about the short-term picture?

From the short-term point of view, we see that the USD is taking a breather after breaking above the declining resistance line and after the cyclical turning point – that’s a quite normal type of movement that doesn’t make the picture bearish.

Since the largest component of the USD Index is the EUR/USD exchange rate, it seems that the profit potential for our short position in the latter is quite significant.

Summing up, USD Index moved lower this month, but it seems that this is just a breather after a short-term breakout and the medium-term outlook for the index was not negatively affected. The medium-term outlook for the USD Index remains bullish.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts