THE TAKEAWAY: US Dollar Index sold on Spanish bailout hopes but hit rising trendline support changing the trajectory of the greenback > A sour labor report and missed earnings caused what appeared to be the initial stages of risk aversion > Dollar ends week in strong position
The Dow Jones FXCM U.S. Dollar index began to decline in value after gaining ground last week but found traction bolstering the safe haven currency on what appeared to be the beginning stages of risk aversion. In the early hours of the European market open on October 16, rumors spread through the newswires reporting Spain may gain access to an additional line of credit prompting Forex traders to unload holdings in dollars and take on additional risk in higher yielding assets. The Spanish bailout talks appeared to have provided enough fuel to push the greenback lower throughout the next 33 hours of trading until technical support was found on October 17 at a rising trendline, prompting FX traders to ease their selling efforts.
The newly established bidding effort into the currency gained traction as U.S. initial jobless claims disappointed, reporting 388,000 new workers lost their pay, highlighting sluggish labor growth efforts and potentially fuelling Forex traders’ fears that another round of risk aversion may grip market sentiment. A few hours later Google reported earnings and missed heavily, possibly providing the catalyst market participants needed to begin unloading risky positions, as seen in the S&P 500’s decline.
Looking ahead, on October 24 the Federal Reserve will provide their rate decision where changes to current monetary stimulus efforts are not likely. On October 25 the Chicago Fed will release its National Activity Index and durable goods along with weekly unemployment claims figures are scheduled for release.
US Dollar Index, 1 Hour Chart
S&P 500, 1 Hour Chart