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US Dollar Finds Refuge at Key Retracement Level- Sell-Off to Slow

By , Currency Strategist
30 June 2011 22:26 GMT
US_Dollar_Finds_Refuge_at_Key_Retracement_Level-_Sell-Off_to_Slow_body_Picture_2.png, US Dollar Finds Refuge at Key Retracement Level- Sell-Off to Slow

US_Dollar_Finds_Refuge_at_Key_Retracement_Level-_Sell-Off_to_Slow_body_Picture_3.png, US Dollar Finds Refuge at Key Retracement Level- Sell-Off to Slow

The greenback continued its descent into the close of North American trade with Dow Jones FXCM Dollar Index (Ticker: USDollar) falling 0.34% on the session. The losses came on the back of a stellar performance in equities that saw the Dow, the S&P 500, and the NASDAQ advance 1.25%, 1.01%, and 1.21% respectively. High-yielding currencies remain on the offensive as investor sentiment continues to improve, weighing on the dollar which declines against all its major counterparts today save the swissie.

The dollar index broke through interim support at the convergence of the 20-day moving average and the 23.6% Fibonacci retracement taken from the November decline before encountering support at the 50-day moving average around 9570. However with today marking the end of the second quarter and the quantitative easing measures implemented by the Federal Reserve, the dollar may see a reprieve from the heavy selling pressure seen over the past few sessions.

US_Dollar_Finds_Refuge_at_Key_Retracement_Level-_Sell-Off_to_Slow_body_Picture_4.png, US Dollar Finds Refuge at Key Retracement Level- Sell-Off to Slow

A look at intra-day price action sees the index breaking below the 38.2% Fibonacci extension retracement from the April advance at the 9600 level before rebounding off of the 50% retracement at 9550, noted in yesterday’s Dollar Wrap-Up. This level is expected to hold with topside resistance eyed at 9600 followed by the 23.6% retracement at 9660 and 9700. Interim support holds at 9550 with subsequent floors seen at 9525, the 61.8% retracement at 9500, and 9440.

US_Dollar_Finds_Refuge_at_Key_Retracement_Level-_Sell-Off_to_Slow_body_Picture_5.png, US Dollar Finds Refuge at Key Retracement Level- Sell-Off to Slow

Three out of the four component currencies advanced against the dollar, highlighted by a 0.46% jump in the euro. Traders have continued to see the single currency higher as concerns about an imminent sovereign default eased and market sentiment improves. The Australian dollar followed suit as investors chased yields, with the aussie climbing 0.37% against the greenback in US trade. The sterling remained subdued as ongoing concerns about the fragile UK recovery see the threat of additional stimulus measures being injected into the economy which would undoubtedly weigh on the pound.

Event risk tomorrow picks up for the reserve currency with the University of Michigan surveys, construction spending, and ISM manufacturing on tap. June confidence is expected to continue to improve with a print of 72.0, up from a previous read of 71.8. Meanwhile May construction spending is expected to soften, with consensus estimates calling for a flat print after posting a previous gain of 0.4% the month earlier. June ISM manufacturing is also seen easing with estimates calling for a print of 51.5, down from a previous read of 53.5. The data has the ability to upset the recent return of risk-taking behavior as concerns about growth prospects are fueled by disappointing economic data coupled with the end of the Fed’s QE2. Either way, expect the dollar to pare some of weakness seen in recent days.

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

7/1

13:55

MEDIUM

U. of Michigan Confidence (JUN F)

72.0

71.8

7/1

14:00

MEDIUM

Construction Spending (MoM) (MAY)

0.0%

0.4%

7/1

14:00

MEDIUM

ISM Manufacturing (JUN)

51.5

53.5

7/1

14:00

MEDIUM

ISM Prices Paid (JUN)

72.0

76.5

7/1

21:00

LOW

Total Vehicle Sales (JUN)

12.00M

11.76M

7/1

21:00

LOW

Domestic Vehicle Sales (JUN)

9.36M

9.22M

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or subscribe to their daily analysis, please send inquiries to:mboutros@dailyfx.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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30 June 2011 22:26 GMT