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The U.S. Dollar is rocketing to new highs yet again today, continuing a vicious rally that began over a month ago. The EUR/USD pair had no real reaction to the ECB's decision to leave rates at 4.25% or to Trichet's speech 45 minutes later, but the ISM non-manufacturing number lit a fire under the greenback.
The headline number indicated growth (50.6) instead of the expected contraction (49.4). While this was only slightly better than expected, it was all the news the Dollar Bulls needed to set it off (see figure 1).
Figure 1: USD crushes the Euro after the ISM release. Source: Intellicharts
The Dollar increased its gains when the energy report hit one hour later, resulting in a dive of 150 pips in two hours on the EUR/USD pair. Please note that on this currency pair, a falling exchange rate indicates that the Euro is falling, and the U.S. Dollar is gaining.
It's also interesting to note that neither the ISM number nor the energy inventory report was overwhelmingly positive, yet the USD took off just the same. This is an indication of how the sentiment toward the USD has changed over the past two months.
Long term USD bulls have reason to cheer as well, due to the "Golden Cross" on the U.S. Dollar Index daily chart. A Golden Cross refers to the 50-day SMA rising above the 200-day SMA, and is considered a very bullish indication (see figure 2).
Figure 2: A "Golden Cross" on the USD Index. Source: Intellicharts
Today's activity pushes the EUR/USD pair close to a major support level, the December 2007 lows near 1.4300 (see figure 3).
Figure 3: EUR/USD pulls back to major support. Source: Intellicharts
The next major support levels are 1.4000 and 1.3850. If we get a bounce, I'll be looking to short.
Ed Ponsi is the President of www.FXEducator.com and www.EdPonsi.com. He has appeared on CNN, CNBC, the BBC and Fox Business News, and is a frequent guest lecturer at trading events and seminars around the world. Ed has advised hedge funds, institutional traders, and individuals of all levels of skill and experience. Ponsi is featured on the FXEducator.com DVD series, Forex Trading with Ed Ponsi, and is the author of the best-selling book Forex Patterns and Probabilities.
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