Bearish Pressure Rises for Dollar, Euro

08/24/2011 6:00 am EST

Focus: FOREX

Increasingly bearish chart formations are setting up for the US dollar index and the EUR/USD currency pair. Here are the key levels to watch as both continue to trend lower.

After having repeatedly said that we believe that range-bound trading will dictate price action in coming weeks, our position is beginning to shift to a slightly more bearish outlook for the Dow Jones FXCM Dollar Index.

As the index continues to post top-side failures, each lower than the previous one (barring the exception in mid-June), we believe that top-side containment is becoming stronger, and continued lower tops look to be in the making as the index continues to ease lower.

While on the downside, after the index posted fresh lows several weeks ago, setting up a potential double-bottom as the index moves lower again, we contend that it is more likely that the index will continue to post fresh lows, albeit marginal ones.

Therefore, the outlook at this juncture takes a more bearish hue, and it will take a decisive top-side break toward 9700 initially to relieve downside pressure, and above 9800 for us to get excited about a potential upside move.

Here is a daily chart:

chart
Click to Enlarge

In terms of the EUR/USD currency pair, the market continues to adhere to a bearish sequence of lower tops since May, with a fresh lower top now in place by 1.4535 ahead of the next downside extension back towards and eventually below 1.4000.

chart
Click to Enlarge

In the interim, look for any intraday rallies to be well capped by 1.4500, while only a daily close back above 1.4535 negates. Short-term support now comes in by 1.4255, and a break back below that level should accelerate declines.

By the Staff at DailyFX.com

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