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US Dollar Index Embarking on Voyage of Recovery…

11 June 2009

…at the least over the shorter term. Last week the US Dollar Index started to rebound from technical support, aided by an interesting ‘Fibonacci’ projection which we detail below. Our bullish view here underpins our thinking across a range of markets that we cover in the FX Trading Guide, where we have adopted some early, somewhat aggressive reverse stances.

MONTHLY CHART:
The main sign in 2008 that long term bears were losing momentum was the breach of the bear channel top projection.
Subsequent resistance was found from the 38.2% recovery level.
Recent weakness has now found support close to the 61.8% pullback level (77.93) and Dec-08 low (77.688).

DAILY CHART:
Note how close the 86.960 76.4% level comes to the 86.871 20-Apr high –we believe this is no accident (although it doesn’t always happen, and pinpoint accuracy is rare) and illustrates the underlying natural, ‘Fibonacci’ forces at work.
It implied a downside projection at 77.96, just below last week’s low.
This technique recently worked well in a few other markets such as EUR/USD and USD/JPY, as discussed in the Guide.
Here, note that the bear channel base projection has provided effective support, and Wed 03-Jun was a virtual Key Reversal Day.

All of this makes a recovery phase likely. Already the 23.6% bounce level at 81.000 has been eroded, and the next target/resistance now lies at 82.631/82.647, 19-Mar low and 38.2%. It should be a struggle to push through this initially. Also keep in mind the channel top at 83.75 and falling. We can’t yet judge how long-lasting a dollar recovery will be but, for now, we view s/term weakness as corrective/temporary ahead of further bull action.

Note: Last week’s bullish Update on USD/SGD remains sound, with the partial profits target of 1.4600 quickly reached.

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