Dollar Could Pullback From These Levels

By Mike Ber

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Bias: Bullish-Neutral

US Dollar Features – 1 Hour Chart

Excerpt from our Weekend USD report:

“Our bias is Bullish-Neutral on the US Dollar Features Index. The overall picture is bullish, but we expect the index to retreat before continuing higher. Dollar had a nice run, and there is no reason to believe that this run will end. We think a retreat to a 81.565-81.23 area is very likely, and will represent a very good buying opportunity. Eventually we are looking for the dollar to rally back up to the previous high – 83.42, and at that time we will be watching for a dollar to continue higher or form a double top and break down.”

Even though we expected a pullback to 81.565 area, the dollar reached 82.25 and bounced off this level. The dollar acted in a very bullish manner and buying pressure brought it to the previous highs around 83.355-83.42 area.

Right now the dollar trades within a 82.22 – 83.17 range.

Our bias is still Bullish-Neutral. We believe that the most bullish thing that dollar can do is to trade sideways, and consolidate its recent move. After that we expect the index to make new highs.

Having said that, the rally might not be sustainable at this point. Indeed, the recent session shows some signs of weakness. It remains to be seen if we formed a double top here or not. Dollar couldn't make a new high today, even though it had a strong catalyst to do so – the unresolved situation in Cyprus with regards to bailout. Cyprus lawmakers overwhelmingly rejected the terms of the bailout proposed by the Eurozone, with non of the politicians voting in favor of the solution.

Markets Expect Fast Resolution.

Cyprus becomes the first country in Europe to defy the European authorities and Germans. All previous bailout attempts worked in the past as parliaments in Ireland, Portugal, Greece, Spain and Italy – all voted in favor of accepting tough austerity measures demanded by European Union and International Monetary Fund.

The path that was chosen for Cyprus by ECB and Germany to resolve its financial difficulties couldn't be worse. It's a big mess now, and somebody will have to explain who came up with this idea in the first place. We can be certain though, that the situation will be resolved one way or another very soon.

All the banks will remain closed across Cyprus until Thursday, and the authorities will have a hard time to keep them closed for a longer period of time. Cyprus may have no choice now, but to impose a levy. One way or another, if the levy is imposed or not, all the accounts will be drained because there is no trust in its banking sector.