The US dollar index broke the first level of support at the long term up trend line and is now challenging the Nov 2010 low. It is likely to hold here, because the yen looks like a blow-off top today and the Euro has just failed a breakout and is forming a triangle right now. If the triangle is broken to the downside as I suspect it will be, the US dollar will finally begin a rally of at least a few percent and the Euro and yen will both decline together.  That is exactly what the dollar needs.

So if you have not sold your US dollar index or anti-Euro positions (e.g. UUP and EUO), hold on a bit.  Give the trade one more day would be my suggestion. Exiting the UUP trade based on the prior stop (21.90) is not unreasonable, but I’m giving it a bit more lattitude, because today has features of a possible natural turning point for all three of the important currencies mentioned. If the Nov. low is taken out, you may want to quickly step aside.  You must be comfortable with your own stops!  My hypothesis seems reasonable, but reality rules my stops.

If you do not know how to set stops, read my “buying checklist” here: Buying Checklist with Comments on Trailing Stops

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© 2011 David B. Durand, M.D. All rights reserved.