The U.S. dollar index, so far, is having its second-best month since last June.

BIG PICTURE

The dollar index is a basket of currencies that consists of the euro, yen, pound, loonie, krona, and franc. The arguments are still strong for the basket to weaken and for the dollar to strengthen. The U.S. economy continues to improve as jobless claims continues to decline and investor confidence is growing.

GROWTH DIFFERENTIALS

The other countries represented by the dollar index basket do not look as strong as the U.S.

The euro zone is still not experiencing enough economic growth and even Germany is starting to post weaker data points. Last week, the G-7 gave the thumbs up sign to the Bank of Japan (BOJ) to continue its QE efforts (so far 30% devaluation). The Swiss National Bank (SNB) may also look to finally weaken its currency during its next quarterly meeting on June 20. The pound just broke below a key bullish channel and further weakness may be targeted. The fundamentals may not support too much downside for the loonie and krona.

THE PLAY

If price action breaks out and reaches 84.73, bullish momentum may look for a run towards the 95.78 region which is the 127.2% Fibonacci level of the July 2012 high to September 2012 low move. A protective stop would be recommended at 83.95.

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