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Dollar Holds Despite Commodity Rally

Overall, the major pairs are preparing to wrap up a day in which the market has again failed to move anywhere of importance.

By TheLFB-Forex.com November 03, 2009

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Overall, the major pairs are preparing to wrap up a day in which the market has again failed to move anywhere of importance. The major pairs plunged to fresh lows throughout the European trading hours against the dollar, but the market took advantage of the U.S. session to retrace most of these declines.

Since the day started, the only currency that actually strengthened against the dollar was the cad, while all the others are trading in the red. Traders should note that the dollar index was able to hold ground on Tuesday, even though the commodity market posted very strong gains. Usually, a strong commodity market automatically creates short dollar orders. Maybe we have a dollar-high swing point in the near term.

Dollar Index Technical View: TheLFB Member Charts

Daily chart trend: Short. Main price points: 75.00. Looking for: Ending diagonal

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Prices on the dollar index daily chart are threatening the upper line of an ending diagonal, where a break-out will confirm that the bottom is in place. In this case, a retracement into the red wave IV area will be expected, while the current lows around the 75.00 zone must hold.

The RSI indicator is showing a bullish divergence, which also indicates a change in trend direction.

The euro (EUR/USD 1.4705) fell as much as 150 pips during the intraday session, to test the 50-day moving average. Since then, the euro has retraced almost half of the down trend. Moreover, the euro retraced the move in the 1.4700 area, which has been the main support area of the last five days of trading. On the daily chart, the euro appears to be forming a bullish pin-bar formation.

The pound (GBP/USD 1.6400) used the European session to consolidate in the 1.6250-1.6300 area, slightly above the support area formed by the 20 and by the 50-day moving averages. From there, the pound moved almost exclusively higher during the U.S. session, and right now is trading near the break-even line. The next important support to the upside is in the 1.6600 area.

The aussie (AUD/USD 0.9000) reached one-month lows during the European session, as the pair broke below the 0.8950 area. Over the last four days of trading, the 0.8950 area acted as an important support level. However, helped by the rally seen in the equity markets, aussie started to recover the declines seen earlier in the day. The pair appears to be forming a bullish pin-bar formation on the daily chart, similar to the euro.

Trade Plan of the Day: TheLFB Trade Plan is GBP/USD, one of the six that are available to members on the major pairs each day, plus four JPY-based cross pairs, S&P futures, oil, gold and the dollar index.

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Trade Plan of the Day.

Currency Glossary.

The cad (USD/CAD 1.0685) was today's strongest pair, something that has not happened too often lately. The gains of the Canadian dollar were mostly driven by the commodity market, where gold surged a little more than $30, to a new high for the current year, with market chatter focusing on an Indian move into the gold market of around $6.7B. In addition, the cad broke below a support trend-line that has been holding the pair for almost two weeks.

The swissy (USD/CHF 1.0270) traded on very strong volume and had a range of approximately 140 pips on Tuesday, way above the average of the last few weeks of trading. Despite this, the swissy tested both the 20- and the 50-day moving averages, but failed to break any of these two swing point areas.

The yen (USD/JPY 90.30) had a range of only 70 pips during the day, and most of the time it failed to follow the overall direction of the market. The yen started the day just below the 20-day moving average, plunged 60-pips lower, but then recovered every pip lost earlier in the day. Right now, the yen appears to be getting ready to break above the 20-day moving average.