USD: Is Its Number Up?

Let’s look at the U.S. Dollar over the last 3.5 years.

Stiff Resistance
With the exception of June 2010 -- when the dollar traded as high as 88.80 -- the 84/84.50 level has served as stiff resistance. It appears a triple-top pattern is being established on the weekly chart over the last three weeks. The horizontal red line shows the dollar’s three failed attempts -- Aug. 2010, July 2012 and May 2013 (it seems, so far). Stochastics are starting to roll over and I’m anticipating a 50% Fibonacci retracement to unfold, which would drag prices under 81, where the greenback traded in early 2013. Such retracement would put futures under their 20-day and 50-day MAs on the weekly chart… which are kind of a big deal. As of this post, on the daily chart, June futures are under their 20-day MA for the first time since May 9 and on the precipice of breaking below the 50-day MA, now just 15 ticks away from current trade.

So, why is the U.S. dollar’s action so closely monitored?

It's War
Because we’re in the middle of a currency war! Nations around the globe are in a race to weaken their currencies. So far, the Japanese are in the lead, but quick on their tail are a number of European nations. The greenback’s near 7% gain since February 1 only confirms what I’ve said before -- the dollar is just the best house in the worst neighborhood.

Lots To Watch
With market participants eyeing the possibility of QE3 tapering off, central bank meetings, GDP figures, payroll data, unemployment figures and perceived inflation levels will be in the limelight in the coming weeks.

As for trade ideas, if you’re not willing to be short the dollar… let’s look to buy commodities and non-U.S. dollar currencies…instruments that typically exhibit an inverse relationship with the greenback. In my opinion, we could see short-term appreciation in energies, metals, cocoa, all European FX crosses (Euro, Swiss and Cable) and commodity currencies (Loonie, Aussie and Kiwi).