US Dollar Remains an Attractive Buy, but Only at These Price Levels

By DailyFx | Updated August 04, 2014 AAA

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- US Dollar poised to hit fresh highs against major counterparts

- Reaction of DJ FXCM Dollar Index at key resistance is important warning

- Pullback in FX volatility prices suggests price action may slow

The US Dollar looks on pace to hit fresh highs versus the Euro and British Pound. Yet we’re cautious on buying until we hit these price levels.

Traders sent the Dollar to fresh highs across the board, and the Dow Jones FXCM Dollar Index now trades at important price resistance levels. The fact that the USDOLLAR has pulled back at the confluence of its 52-week moving average and 50% retracement of its peak-to-trough decline suggests that the USD may consolidate before its next push higher. And indeed we’re cautious of buying the Greenback until we see some price consolidation.

DJ FXCM Dollar Index Rallies Sharply, Encounters Key Resistance

US Dollar Remains an Attractive Buy, but Only at These Price Levels

Source: FXCM Trading Station Desktop, Prepared by David Rodriguez.

Forex volatility remains another key factor which warns against chasing Dollar gains at these prices. We noted last week that traders had priced in an important jump in USD price moves ahead of a key week of event risk. Yet those same markets now show one-week volatility prices are once again near record-lows, and it seems traders are positioned for price consolidation before the next major Greenback moves.

Forex Volatility Prices Drop, Suggests Slower US Dollar Moves Ahead

US Dollar Remains an Attractive Buy, but Only at These Price Levels

Data source: Bloomberg, DailyFX Calculations

We are thus looking at key price support levels for the US Dollar versus the Euro and the British Pound. For the EURUSD our Strategist notes a key potential inflection level at $1.3485, and in our opinion selling remains attractive as long as the pair remains below the $1.3500 mark.

In the GBPUSD we’re keeping a close eye on how price reacts near current lows, as the $1.6820 level likewise marks the February high and key congestion. As long as price remains below potentially pivotal resistance at $1.7000, we remain in favor of GBP-short positions.

See the table below for full rundown on a per-currency pair basis and keep track of changing conditions with future e-mail updates via my distribution list.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

US Dollar Remains an Attractive Buy, but Only at These Price Levels

US Dollar Remains an Attractive Buy, but Only at These Price Levels

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