After trading as low as 78.77 on the 18th of December, the dollar has since managed to mount a decent rally. In order for this rally to gather steam, the following conditions need to be met;
It cannot close below 78.77
It needs to trade above 84 for 3-6 days in a row
If it can fulfil the above two requirements, the dollar will have a very good chance of testing its old highs and possibly putting in a new high before mounting a strong correction that could last till the end of 2009.
A market that has mounted such a strong rally does not simply break down in one shot; the normal course of action is a rapid pull back, followed by a strong upward move (blow off top) and then a more orderly pull back that potentially leads to a series of new all time lows.
The dollar has to stay above 78.70 and rally past 84 to turn the short term trend upward. This whole pattern could take between 3-6 months to complete. Traders who are bullish on the dollar can open up long positions via the ETF UUP (dollar bullish ETF) or short the Euro via DRR, as the Euro usually trades in the opposite direction to the dollar. We must point out that no matter how strongly the dollar rallies in the upcoming weeks and months, this rally will fail and the dollar will most likely end the year on a lower note; it could conceivably put in a new low before the year is out. Thus traders who are bullish on the dollar should look into closing any and all positions if and when it tests its old highs.
"Man who stand on hill with mouth openwill wait long time for roast duck to drop in."
ConfuciusBC 551-479, Chinese Ethical Teacher, Philosopher