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Trading Currency Options – US Dollar Index 17th April 2009

US Dollar Index - Daily Chart For Trading Currency Options

Yesterday’s wide spread up bar provided some much needed momentum for the US dollar, but before we place too much emphasis on this move there are several factors that we need to consider very carefully before entering into long dollar positions in any of the currency pairs.  First on the daily chart the index has formed a strong pennant pattern since mid March with a series of higher lows, all of which have failed to break the 86 region, and in early trading this morning this pattern seems to be replicated.  In addition this area also aligns with another resistance in February which was eventually penetrated.  Yesterday’s price cleared both the 9 and 14 day moving averages but stopped well short of the 40 day, and for continued dollar strength we need to see 2 effects come into play.  First we need to see a clear break above the resistance level outlined above, and secondly a break of the 40 day moving average with all three moving averages providing support to the move.  If and when this occurs we could see a move back to retest the highs of the index at 89.50 and above which is suggested in the weekly chart.

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