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Long-Dollar Reversal Signals

May 13, 2011 5:55 AM ET
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The London Forex Broadsheet™ (https://www.thelfb-forex.com/) (commonly known as TheLFB™) was formed by institutional traders and business professionals with a strong desire to give something back to the retail trading community. TheLFB team has over three decades of trade experience in institutional environments. TheLFB team comprises a mixture of analysts and business professionals who have built and worked in trading rooms globally, and have played key roles in developing Fortune 500 companies. The main LFB website is a visual tour-de-force — fun, bright, collegial and uncluttered. There are designated areas which cater to all special interests and needs. Blogging, analysis, economic calendar, trade desk, virtual trade room, daily broadcasts, trade alerts, and an array of features as deep as it is broad.

The impact of recent moves lower in commodity and risk markets have allowed the US dollar to be bought, and allowed the dollar index (DXY) (75.00) to hold above support at 74.50. The dollar index has not generated upside momentum at the same pace as global markets declined recently, which is a sign that a bounce from support may be coming in commodity and equity trade, which will send DXY lower.

Recent trading patterns highlight the fact that although the world’s reserve currency is a ‘safe haven’ in times of equity selling, there is no desire to be long the US dollar for anything other than a hedge against falling asset prices.

Each of the major currencies have gained in value against the USD overnight, but most are still trading within recently set support and resistance bands. Caution is required in opening any new trade position ahead of US economic releases today. News wires have gone quiet in regard to ‘strong-dollar’ US Administration jawboning, and the inability to back the talk with action.

TheLFB client notes have called for consolidation at support above 72.50 on the dollar index (DXY) in the mid-term, for 74.50 to likely be re-tested as support in the near-term, and to monitor resistance at 76.50 in the long-term. There is nothing on the technical or fundamental horizon that changes the view that DXY values will have a hard time breaking the 72.50 to 76.50 trading channel.

The major currencies are trading in mixed fashion against the US dollar with the British pound and euro losing ground, while the Australian and Canadian dollars track global commodity action, and the Japanese yen, and Swiss franc move sideways in-line with interest rate markets.

Eight days of sideways consolidation have allowed only one break-out signal to form on the DXY 1-hour chart.

No signals are forming in the near-term, after last week’s burst of long-dollar energy continues to be absorbed. Clients will be notified when price action breaks and holds.

Sentiment towards the Usd remains mixed. Price action favors consolidation of recent moves across all major currencies. Caution is required by traders who are looking for sustainable price action on either side of the US dollar as TheLFB trade desk is not expecting a sustainable break-out higher in DXY values above 76.50, or lower below 72.50 in the mid-term.

Price Action:
There was strong buying activity previously at 74.50 on DXY, which is a potential price reversal area of note. This swing point area, where a near-term trend forms and price action reverses previous trade direction, will be closely monitored and market alerts sent to subscribers as things unfold.

The daily trading range on DXY is 60 ticks, which is above the historical norm and indicates high speculative interest. The 50-day Simple Moving Average (SMA) on DXY is @ 75.50, with the 20-day SMA at 74.40. DXY price action has a 36-month 75% correlation to crude oil and SPY moves, and an 80% correlation to the euro (Eur/Usd) currency moves.

The detail below will help guide traders with analysis on intra-day price movement, trend, and momentum. Clients will note how regularly the Swing Point and Support or Resistance areas below are used each day.

Content taken from TheLFB Trade Plans

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