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The rally the dollar is enjoying has stepped up the talk of near term rate hikes from the FOMC.  The more the dollar rallies, the more it seems that traders are intent on strong-arming the Fed into a sooner — rather than later — rate hike to support the battered dollar.

There are some important levels that need to see buyers step in so that the rally can set a foundation.  74.00 will be the key level to watch. 

Here’s the chart.

- Raghee

Experienced traders understand volatility from hours spent in front
of their charts and trading platform.  There’s usually statistical
relevance that can back up anecdotal evidence.

Experienced traders will tell you that active trading hours are
typically between 8:00 and 10:00am EST.  Looking at the chart below of
the EUR/USD you can clearly see when the widest ranging activity
occurs.  This is not applicable to the EUR/USD only, a similar study of
the USD/CHF, USD/JPY, GBP/USD reveals the same active trading hours.
The reason?  The U.S. Dollar.

Over the next few posts we’ll take a look at some of the stats as they apply to trading times, days, and specific pairs.

courtesy of Autochartist PowerStats

Learn more about Autochartist as well as the Price Movement Range and Stop Loss/Take Profit statistics at www.autochartist.com.

The U.S. Dollar Index is the most important confirmation chart I use…and I use it to gauge what the EUR/USD, USD/CHF, GBP/USD, and USD/JPY are most likely to do.  Don’t forget that "comm dolls" like the USD/CAD, AUD/USD, and NZD/USD have correlation to the Dollar as well…even though we look at these as split personality pairs because of they are "commodity currencies".

Even though the U.S. Dollar is a future contract there is too much correlation between the major pairs and the Dollar Index to ignore this key chart. Plus I really feel that ALL forex pairs are, to a degree, "commodity currencies" when you understand the correlation between the pairs and the Dollar and the Dollar and market like crude oil and gold.

So with that in mind, the Dollar is bouncing around in a range between73.80 to the upside and 71.80 to the downside.  These are both minor psychological levels.

If this chart continues to bounce in the range, then daily charts are not going to find a lot of room to run on breakouts.  I’m watching this range closely.  For intraday chart traders (I watch the 15, 30, 60, 180, 240) the range should not present too much of an issue.

- Raghee

For now, the ECB’s decision to leave rates at 4.00% helped the EUR/USD stay above 1.5500 and begin a potential double top in the Dollar Index.

Never assume a breakout in any market…and always know the context of the trend…many traders were putting too much emphasis on the "dollar’s recovery" without looking the major ceiling(s) still overhead.

The dollar is finally enjoying some time trading higher…but what makes it so interesting is that for once it’s Bernanke who’s helping it higher.

Bernanke hinted at a second half of the year recovery and mentioned that the weakened dollar has increased the price of imports.  Now ofcourse I am using my own words, but that’s the meat of what he said.  This in effect is the first of three steps to a dollar recovery…first is taking future rate cuts off the table.  Stock bulls don’t like the sound of that as most stock traders think the whole world revolves around nothing but equities…well all that complaining and whining for lower interest rates has helped crude oil higher…hmm, do people not understand "cause and effect"?  Apparently not.  Ofcourse speculation and demand has helped crude higher as well (less of the former and more of the latter).

The Dow has been reversing the pre-market rally and down triple digits now…the sell-off has suspiciously accelerated on the lunch time doldrums and that alone will lead me to look at the close and see if this sell-off doesn’t recover some after the bonds close.

I think what no one is mentioning is the fact that the rate cuts are off the table for now and the stock market is selling off for the same reasons the dollar is buoyed up above 73.00.  Maybe a simplistic view but certainly part of what is being baked into the cake. 

I’ll be watching the 73.20 and 73.00 levels for a "base and bounce" if the Bernanke dollar rally is for real…

- Raghee