diff --git a/common.c b/common.c
index 7bf600167..f622deb11 100644
--- a/common.c
+++ b/common.c
@@ -408,6 +408,11 @@ wchar_t *wcsvarname( wchar_t *str )
 	return 0;
 }
 
+int wcsvarchr( wchar_t chr )
+{
+	return ( (iswalnum(chr)) || (chr == L'_' ));
+}
+
 
 /** 
 	The glibc version of wcswidth seems to hang on some strings. fish uses this replacement.
diff --git a/common.h b/common.h
index 1de6f8de9..0466c562b 100644
--- a/common.h
+++ b/common.h
@@ -151,6 +151,14 @@ wchar_t *wcsdupcat2( const wchar_t *a, ... );
 
 wchar_t *wcsvarname( wchar_t *str );
 
+/**
+   Test if the given string is valid in a variable name 
+
+   \return 1 if this is a valid name, 0 otherwise
+*/
+
+int wcsvarchr( wchar_t chr );
+
 
 /**
    A wcswidth workalike. Fish uses this since the regular wcswidth seems flaky.
diff --git a/highlight.c b/highlight.c
index df9c72452..a785ab24b 100644
--- a/highlight.c
+++ b/highlight.c
@@ -219,9 +219,17 @@ static void highlight_param( const wchar_t * buff,
 							break;
 						}
 
+						case L'$':
+						{
+							wchar_t n = buff[in_pos+1];							
+							color[in_pos] = (n==L'$'||wcsvarchr(n))? HIGHLIGHT_OPERATOR:HIGHLIGHT_ERROR;
+							color[in_pos+1] = HIGHLIGHT_NORMAL;								
+							break;
+						}
+
+
 						case L'*':
 						case L'?':
-						case L'$':
 						case L'(':
 						case L')':
 						{
@@ -349,8 +357,9 @@ static void highlight_param( const wchar_t * buff,
 					
 					case '$':
 					{
-						color[in_pos] = HIGHLIGHT_OPERATOR;
-						color[in_pos+1] = HIGHLIGHT_QUOTE;
+						wchar_t n = buff[in_pos+1];
+						color[in_pos] = (n==L'$'||wcsvarchr(n))? HIGHLIGHT_OPERATOR:HIGHLIGHT_ERROR;
+						color[in_pos+1] = HIGHLIGHT_QUOTE;								
 						break;
 					}
 				
diff --git a/parser.c b/parser.c
index c4cbab149..b0aef8e30 100644
--- a/parser.c
+++ b/parser.c
@@ -2684,10 +2684,11 @@ static int parser_test_argument( const wchar_t *arg, int babble, int offset )
 
 					default:
 					{
-						if( !iswalnum(*(pos+1)) && 
-							*(pos+1)!=L'_' && 
-							*(pos+1)!=VARIABLE_EXPAND &&
-							*(pos+1)!=VARIABLE_EXPAND_SINGLE ) 
+						wchar_t n = *(pos+1);
+						
+						if( n != VARIABLE_EXPAND &&
+							n != VARIABLE_EXPAND_SINGLE &&
+							!wcsvarchr(n) )
 						{
 							err=1;
 							if( babble )