Wednesday, July 27, 2011

Dollar Index Takes Out Key Support Looking to EUR/USD For Direction

by DailyFX
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Dollar Index Takes Out Key Support Looking to EURUSD For Direction body 7 forex
The Dow Jones FXCM Dollar Index (ticker: USDollar) took out key support at early May lows at 9340 over-night. While this support level is fully negated until the index closes below it the current theme of selling the greenback at every turn is setting up the index to close below this level. If it fails to do so then further downside extensions may be postponed. However, assuming that the dollar index does close below this level today and we enter somewhat uncharted territory we have been looking at Eur/Usd for some directional bias.
Dollar Index Takes Out Key Support Looking to EURUSD For Direction body eur forex
We have highlighted in the above chart the well known series of lower tops carved out by the euro in recent months which has kept most techies relatively bearish on the euro at least until this trend is broken. A failure to take out the highs from the third lower top will keep the trend in tact as the pair carves out a fourth lower top and will put the pressure on the downside once again, and likely see the dollar index rebound. However, if the euro keeps climbing and takes out the highlighted level and negates this trend we could see a significant shift in structure and bulls take control of the pair once again, which would see the dollar index extend its declines.

Therefore, as things stand with little directional bias emanating from the dollar index itself we will watch the most heavily traded and most liquid currency pair for further directional cues for the buck in coming days. It goes without saying that while these technical signals are all well and good one should keep a keen eye on political developments in Washington regarding the US debt impasse, these developments, or lack thereof, are likely to be the catalyst of price action.

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