While Europe is poised to enter a recession, the U.S. economy shines as U.S. manufacturing and construction spending statistics help keep the positive trend going. Ten year Treasury rates soared 8 basis points to 2.42%. While the trend on most of the daily charts of the majors clearly display the potential for further dollar strength, we may see a slight pause in the move until we get beyond Thursday’s ECB rate decision/meeting. Expectations are growing for the ECB to act and if they do announce an asset backed security program, we could see another wave of dollar strength(euro weakness).
Earlier this year, when I covered the first quarter GDP miss, I highlighted how since last October, the Dollar Index (DXC) has stabilized around the 79.00 handle. As expected, the rally continued higher towards the 81.90 area. It is around that area that a bearish ABCD pattern was invalidated as price ran through the 82.25 level. Currently a potential bearish Butterfly has formed at the 83.00 handle. If we do see a reversal occur, key support will come from the 82.25 level. If bullishness remains in place the next key resistance level of 83.50 is taken out, we could see bullish momentum target last year’s high of 84.96.
The trade: Buy Dollar Index at 83.50 with a stop loss at 83.10 and a take profit at 84.70. The Risk/Reward Ratio is 1:3.
Edward J. Moya
WorldWideMarkets Online Trading