Email of the day (1)
Comment of the Day

May 23 2011

Commentary by Eoin Treacy

Email of the day (1)

on the potential for a US Dollar rally:
"I attended the Sydney chart seminar. You mentioned you were thinking about putting in some DXY long positions. Very nice call. I doubted the likelihood of the move. It never ceases to amaze me how humbling trading financial markets can be. Well done."

Eoin Treacy's view Thank you and I agree that the markets offer an excellent avenue for self-discovery. At the Sydney seminar earlier this month, the US Dollar Index had become quite overextended relative to the 200-day MA and had returned to an area of potential support. Sentiment at the time was also distinctly bearish. On seeing the assassination of Osama Bin Laden, my first instinct was to open a Dollar long position, suspecting that it may offer a short-term catalyst for a return of demand.

As it happens, my internet connection at the hotel was too slow and I could not access my trading account so I could not successfully follow this hunch. On returning from Asia, I did not wish to chase the Dollar higher and since I would be travelling again the subsequent week I was reluctant to open new positions.

The Dollar Index declined steadily from 2002 to 2008 and over the last three years has at least lost downward momentum. The rally from the early May lows has broken the five-month progression of lower rally highs and unwound more than half the oversold condition relative to the 200-day MA. A fall back below 74.85 would be required to check short-term potential for some additional upside. The Index will need to find support above the early May low following a meaningful reaction to indicate that a low of medium term significance has been reached. While the US Dollar has lost downward momentum against currencies such as the Euro, Asian currencies remain in a relatively consistent medium-term uptrend against it, despite short-term scope for a reversion towards the 200-day MA. .

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