A Tale of Three Currencies

04/25/2013 9:00 am EST

Focus: CURRENCIES

The bull market in the US Dollar Index should resume and could target the upper 80s, while the euro and aussie are headed down, writes Cody Tafel of Minyanville.com.

The US Dollar Index found support at the 82 level that was highlighted last week and it turned sharply higher last Wednesday. I think this successful test of support shows that the trend higher is healthy and intact, and I would now target a move into the upper 80s for the US Dollar Index. Notice how the daily MACD is turning higher and showing improving momentum, and the longer-term pattern looks like a bullish cup and handle could be forming. A close above 84 could really get the DX going higher. See the chart below.

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The euro has also started to stall out above the 1.30 level, and actually traded below it earlier this morning. I would continue to sell rallies in the euro. I think this could be the start of another downside trend that could take the euro back to the 1.20 level. Therefore, the risk reward to short position in the euro makes sense to me here, and you can see the overall bearish pattern below. A close below the 200-day moving average around 1.29 could accelerate the sell-off.

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The Australian dollar had been one of the few currencies holding up well against the US dollar, but that changed as well last week. The 200-day moving average around 1.04 could not support the Aussie dollar any longer, and it is now back to testing the low end of the range it has been trading in since last summer. With worries of a China slowdown creeping up again, this currency could stay under pressure here, and should head back toward parity against the US dollar. See the breakdown below.

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Though the Aussie dollar shrugged off the weak Chinese numbers and disappointing Australian CPI data, any more negative releases could precipitate a move from this pair.

By Cody Tafel, Contributor, Minyanville.com

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