USD Index - Daily Candle Chart 30 Oct 2009

The US dollar index continued its short term recovery on Friday, emerging from the depths like some half drowned swimmer, exhausted but still alive, and just managing to break the surface for air, or in this case the 40 day moving average, supported from below by some buoyancy tanks knows as the 9 and 14 day moving averages! Clearly both of the above are positive signals for the US dollar, and for currency options trading this week we need to be extremely careful as the middle of the week sees the FOMC meeting, followed by the Non Farm Payroll data on Friday. Last week of course saw the US economy emerge from recession and into positive growth once again, and should the FED see this as a sign that the economy is finally starting to turn, then they could signal that interest rates may have to rise sooner rather than later. This of course would be presented in the usual coded way in the associated statement to the interest rate decision ( rate will be kept on hold!) and if so, then this would provide a positive boost to the US dollar, and a possible longer term change in sentiment as the prospect of higher yields beckon. This would be further reinforced should the NFP data come in better than expected and add to the feeling that the worst is over.

Technically of course there is a long way to go yet, and the first barrier is the resistance all the way up from the current price point, through 78 and then above the 80 to 81 price region. Should all these be cleared then we can assume that the recent downwards spiral has come to an end and will be followed by  a period of upwards US dollar momentum for currency options trading over the next few months.

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