The FX market is quite choppy once again as risk appetite is coming back among investors. As a result, the US Dollar plunges against the major other currencies in the world, and the carry trade strategies re-appear to take advantage of the interest rate differentials between currencies.
The Greenback is currently on its lowest levels of the year: the EURUSD is trading around 1.4150, the AUDUSD around 0.81 and the GBPUSD around 1.64.
The US Dollar index illustrates well this trend as the index lost 11.5% of its value since the high price posted in early March at 89.71 (point B on the chart). It is now trading around 79.43. One major technical crack occurred when the price action broke below its medium-term oblique support line (in green) in late April. Indeed, it was a clear signal that confirmed that the bullish trend which was in place since April 2008 (and more significantly since July 2008) had exhausted.
If we consider the whole upside move that occurred during almost one year, from April 2008 to March 2009 (between points A and B), the current correction has already retraced more than half of this upside move. A further correction to the 61.8% Fibonacci level is expected, but a technical rebound could immediately follow.
Indeed, the technical indicators area already very low. The MACD and the Momentum indicator have posted extreme weak values and may bottom soon. The RSI has just entered its oversold area.
A move towards 78 is then possible in a first time. Then, both momentum indicators and oscillators would be clearly ready to bounce as it would become an opportunity to buy back the US Dollar for short-term countertrend.
The area between 77.5 and 78 could be a strong opportunity to fly back into the index as it is also a previous resistance that may become a new support (point C on the weekly chart).
