The US dollar is one of the most important, yet least discussed chart of the year. Noticing the dollar's break below 79600 late January, early February, only to establish a bearish bias and lure in shorts before turning around higher. The market has held above its reversal window, thus reversing the bearish bias which has led the market to take out its year highs of 8100 set early January. This U turn is having a major effect and pressure on commodity markets as the USD failed to break lower and is trading on new highs for the year. Take note of the gold chart how it is completely opposite of the dollar chart and is an upside down "U" from the beginning of the year.
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Ever since the Euro broke out of its downtrend from November in January after reversing off lows of 12627 and trading through the first trading day of the year range of 13020-13085, this range has turned into support. This is the market showing us that the breakdown in January has a head fake and the market is attempting to reverse its momentum as it climbed back above that first trading day of the year range. Since then, the Euro squeezed into testing resistance from December however was unable to continue the push which was followed by a retest of the 13020-13085 support. This led to another bounce that failed at the now new resistance from February levels, which was followed by another breakdown to retest its support level. This failure at the February levels turned into a right shoulder as the market came down to test its neckline as many shorts were looking for a break to confirm a head/shoulders formation. During the month of April the Euro pressed against this neckline and even clipped it to put in lows of 13000 however held its 12975 lows from February and reversed back higher. This led to a major consolidation and struggle to hold this neckline as the Euro has fought with its back against the wall trying to chip away at sellers and get the market out of this downward pressure. This is needed for the market to try and squeeze higher to have shorts in as fuel for an upside rally. Currently the Euro has worked through its 13200 resistance and is testing its next major resistance from the failed March highs which also meets with a downward resistance from the Feb-Mar highs connected. Buyers who defended the 13020-13085 support level have opportunity again to lock in profits and leave runners to let the market work itself out to try and squeeze through this resistance. A move past the March highs squeezes out the shorts who were looking for the head/shoulder breakdown and targets the February highs. Moving past this February high squeezes out the remaining shorts giving fuel for the next leg up to try and retrace into 138 from where the market broke down from in October. This 138 is the ultimate resistance in Euro off the 14241 highs and sellers should be looking at this level to defend. As stated before the Euro is in short covering mode ever since it climbed above the Jan 3rd levels and support is seen down to 12890. A break below 13000 would shake out weak bulls however taking out the year lows of 12627 is needed to put the ball back in the bears hands.
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For the past 2 and half weeks, the Euro has consolidated and fought to hold its daily neckline stemming from the February - March lows. This was breached on the 16th of March as the Euro hit lows of 13000, however quickly recovered and closed back above the trend line. This shake out has seen the market continue to hold above its neckline, however meeting major resistance at the 13200 level. Last Friday we saw the Euro close on highs hitting 13232, only to turn back lower on Monday and retest its breakout point. This is at a critical level for the Euro as if this market is indeed ready to move higher, these Monday lows of 13107 should be supported for buyers to take out the Monday highs of 13214 to show their strength of pushing back above 13200. In turn the next major resistance comes within 13280-13387 from where the market broke down on April 2nd, as the range for buyers to squeeze through to target the February highs of 13488 and ultimately complete the retracement to 13800.
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Since failing the test of the February levels late March, the Euro has fallen to retest its double bottom of 12975-13004. This neckline is being threatened and the Euro is fighting very hard to hold with its back against this fence. Upside resistance is met within 13195-13391 as the level to move through in order to break out of this downside pressure and move to take out the February highs to complete its upside target of 138. Failure to do so and the neckline is in jeopordy of being broken for stops and to attract shorts where the January level will be retested with 12890 as support off that low of 12627, where a false breakdown can be seen to trap these sellers. Ultimately the January lows need to be broken for the Euro to be back in bear mode, until then the market is in short covering mode and should continue to look into retracing to 138 where it broke down from 142.
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The US dollar most recently has been testing its failed highs from March after the pullback found support at the February lows. This test builds a right shoulder on a failure to take out this high, giving room to break the neckline of 7812-7880. With that the 7800 level will have a better chance of being taken out as the market has tested and failed upside levels. Downside target comes in to take out the October lows. Currently fighting minor support at 79700. Buyers need to squeeze March highs to fail this head/shoulder attempt and target the year highs in order to regain control.
During the last FOMC conference on January 25th, we highlighted Chairman Bernanke's comments about how the inflation rate only hurts one if they "do their life savings in a mattress"
Today, Congressman Dr. Ron Paul questioned Chairman Bernanke on this comment:
4:50- "In January at one of your press conferences you said that, you sort of poked a little bit of fun at people to downplay the 2 % inflation rate. But if you say it's 2, I say its 9, lets compromise for the sake of argument its 5%. You said that it doesn't hurt you unless you're one of those people who stick their money in a mattress, but where are you going to put it? Are you going to put it in a CD and not make any money at all?"
Since the US dollar put in its “Island Bottom” in October of 2010 with the failed breakdown of 74860, the market reversed to create an inverted head and shoulders with a neckline of 77855, targeting 8100. After breaking through its neckline in November, this 77855 level turned into support and the short squeeze was on as the market squeezed into completing its inverted h/s at 8100. Consolidation was seen at these highs with a tug of war taking place. The market began 2012 on Jan 3rd with lows of 79830 and highs of 80225. Following this first day of trading, the market ran into new highs, touching off at 82045 on January 13, 2012. This 8200 level turned into the last hoorah for the short squeeze, trying to get as many shorts out as possible, as the market began to roll over and broke its uptrend line from the October lows on January 18th. Following this break of the uptrend, the market began trading in a newly formed channel pointing down as it targeted the year lows at 79830. These lows for the year were eventually taken out on January 23rd, leading up to the January 25th FOMC statement by the Fed chairman Ben Bernanke. On the 25th as the Fed released their FOMC statement, the US dollar had attempted to rally, however failed. Putting in highs of 80505, only to reverse into lows of 79515. Since this FOMC and break of the year lows, this level has now turned into major resistance for the past 2 weeks at 79515. The year lows that was support at 79830 has also turned into major support as the market reversed its early momentum in the year. At this point the market has reached its 100day moving average on the daily chart and has been in consolidation mode in a fight to hold this support as upside resistance is being tested. Pressure remains to the downside now with the Jan 3rd range of 79830-80225, followed by the FOMC high at 80505 as major resistance. A push past these levels would be needed to get buyers back into control, however only leading to retest the next major resistance coming in at the year highs at 8200 where a failure would create a right shoulder. The question is will the market rally up to test this high and give sellers an opportunity to get out or continue this chase to the downside. Buyers who did not get out in time from last year’s rally are now seeing the pressure turn against them. Below the 100day moving average on the daily, next major support comes in at 77855 being the old neckline from November, followed by the October head at 74860 and year lows of 72860.