Let’s Look At The Dollar

  • December 21, 2004
  • Dave Floyd


With interest and volume waning as we round
out 2004, it is time to look ahead to 2005, which will likely provide some
fantastic opportunities.  First however, we need to provide some insight for
those still looking to satisfy that trading urge. Let’s look at the dollar index
as a way to offer some insight across a broad range of pairs versus analyzing
each one.

–         
While this chart has not changed much
since we looked at it yesterday, it does appear that the a re-test of the 2
standard deviation trend channel going back to August is likely (82.11 at the
time of this publication). 

–         
A close above 82.02 would be
short-term bullish, but a sustained move above 82.29 would be a better sign

–         
The index failed to match of
make a lower low on 12/20, a good sign

–         
Sentiment indicators are showing
a very bullish reading when measured by “bull” and “bear” comments with regards
to EUR/USD…a contrarian signal

–         
Adding to the bullish dollar
argument, risk reversal readings in EUR/USD are rather bearish

 
























Our long in EUR/CHF continues to be consistent with
previous trades in this cross, slow and steady.  As of this morning it has
managed to clear 1.5395 and it pushing towards 1.5420.  Our next target level is
seen at 1.5447 and hopefully a re-test from there of the October highs.  Our
entry point was at 1.5320.

Looking Ahead:

Next year will likely
still be the battle of words and capital over the fate of the dollar; the
question will be who will come out as the victor?  It is a tough call at this
point, but we expect to see another move higher in the dollar that will
represent a ‘trading’ opportunity, rather than a full-fledged
change in the overall trend.  Nonetheless, one can never rule that out.  Some
aggressive budget politics from Capitol Hill could ease pressure on the dollar
and any type of combined or solo intervention against the EUR could also provide
a catalyst.  At this stage, the pieces have not come together, and we are not
willing to make a hard call either way except that a trading bounce higher in
the dollar is possible.


Dave Floyd

 

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