Dollar Index Chart - 12th january 2010

The US dollar index ended on Friday with a distinctly bearish candle for currency options trading on the weekly chart, following the poor NFP data which saw a loss of 85,000 jobs in the US economy for the month. Many analysts had been forecasting a small increase in jobs created, and as result sentiment towards the dollar turned as the prospect of increasing interest rates in the short term receded once again, with the
weekly candle ending as a small shooting star configuration with a deep upper shadow and small body. In the last three weeks the positive sentiment towards the US dollar has waned once again following the strong surge higher during much of December, and the USD index chart now looks weak once again, particulalry as the high of last week seemed to find some resistance from tje 40 week moving average – not a good signal. Whilst the longer term outlook for the US dollar is a return to strength in due couse, in the short term the outlook remains bearish with the 78 price handle proving to be a stubborn area of resistance, with the next area at 80 waiting just above. So in summary , for currency options trading, in the short term we are likely to see a decline in the US dollar once again, if and until the fundamental news improves and the data points to a rate rise sooner rather than later.

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Currency Options Trading - Monthly Chart USD Index 7th January 2010

At times of great change I always feel that it is more valuable to take a longer term view of the markets for currency options trading, and with so much talk of a resurgent US dollar, I thought it would be useful to look at the monthly chart for the dollar index, which reveals in glorious technicolor the depth of move and how far we have travelled since the heady days of 2002 at 120 plus! So with Non Farm Payroll waiting in the wings tomorrow, what is next for the once mighty US dollar, and with the whispering campaign in full swing, most currency pairs are trading sideways at present as we await the figures. From a technical perspective, last month’s wide spread up candle has given us a bullish engulfing signal for the longer term, and may well be the precursor to a full scale recovery for the dollar. However, it is interesting to note that the high of the month found resistance at the 9 month moving average, suggesting that any recovery is going to be hard fought, and with the deep and established potential resistance in the 90 price region, any move higher will need to see sustained and continued momentum in order to breach these significant levels. In the short term we need to see the monthly chart break above all three moving averages, which should then provide the necessary support for a sustained move higher later in the year.

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