It was a long, tight, range-bound summer for FX traders, and unless you are a central bank who loves a tight currency market, any sign of a dollar move, in any direction, is welcomed with open arms. Well the last few days have flashed the beginning signs of a dollar break higher. Now, it seems all FX traders can talk about is the all-but-certain US dollar breakout. But hold on a minute. I know the summer was tough, but let's remain objective here and really look at what price action is doing. The US Dollar Index chart (Composite of the world's 6 major currencies to assign a single value to the US dollar) has recovered only as much as 30% of the 2001-2005 meltdown, before turning back over to re-approach the 2005 lows. To be blunt, there is nothing in this chart that screams full-fledged dollar recovery. Above the 2005 high around 93 and then maybe we can start talking dollar breakout. But before that we should be taking this dollar breakout 1 DXC point at a time. Let me explain further.

The weekly chart shows a nice little parallel uptrend channel (channel 2 ) that pushed us higher in 2005. Then, in early 2006 that channel support failed to now serve as resistance. While that was happening, there was a downtrend channel (Channel 1) forming in 2006 that was just broken on the topside. This is the dollar breakout that everyone is getting excited about. The reason I say hold up on the dollar is party is because every one is ignoring Channel 2. Channel 2 is still well intact and standing by to serve as resistance on a re-test of the channel boundary from below. And based on the current angle of ascent, it appears to be lining up at 89.00, which was the snapping point from the April '06 dollar breakdown. So as I mentioned above, let's take this dollar breakout 1 point at a time.

For tonight, I have a solid zone of USD/CHF Fib resistance between 1.2715 and 1.2735. Those inclined to buck the trend a little could look to offer into this zone with stops over 50. Look to take some partial profit when your current unrealized P/L equals your initial stop loss risk.

Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

Disclaimer
The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.