U.S. DOLLAR INDEX & EUR/USD

Looks like in the short-term Euro is due for a rebound. With the positive news flow from Euro Zone regarding the latest debt sales and restructuring of the Greek debt, U.S. dollar might pullback further helping the RISK ON trades to gain ground. I’ve mentioned in my previous updates that the technical outlook has turned positive for the next several months for the U.S. dollar after the bullish crossover signal of the 100 & 200 day moving averages. While 81.60 challenges the uptrend on the dollar index in the short-term we might be due for a sizable rebound towards 1.328 levels on the EUR/USD. (http://techcharts.wordpress.com/2012/01/07/u-s-dollar-index/)

Let’s look at some of the important technical signals. RSI has a downward trend on the EUR/USD and an upward trend on the U.S. dollar index. For the intermediate/long-term trend to reverse from negative to positive on EUR/USD, RSI should break down the up trend on the RSI. Meanwhile we need to see the RSI breaching above 50 levels to call for a bull market on EUR.

1.328 is a strong resistance for EUR/USD and the price needs to breach above the trend resistance to reverse its downtrend. A rebound towards 1.328 will not change the negative outlook to neutral/positive in the intermediate term. 78-80 area is strong support for the U.S. dollar index. Unless price breaches below the strong support area between 78 and 80, we should view any pullback as a short-term correction.