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Moody’s Slams U.S. Dollar- Index Pierces Key Support

By , Currency Strategist
14 July 2011 01:31 GMT
Moodys_Slams_U.S._Dollar_Index_Pierces_Key_Support_body_Picture_2.png, Moody’s Slams U.S. Dollar- Index Pierces Key Support

Moodys_Slams_U.S._Dollar_Index_Pierces_Key_Support_body_Picture_3.png, Moody’s Slams U.S. Dollar- Index Pierces Key Support

The greenback closed out North American trade sharply lower with the Dow Jones FXCM Dollar Index (Ticker: USDollar) plummeting 1.15% on the session. In his semi-annual policy statement before the House Financial Services committee, Fed Chairman Ben Bernanke cited that the central bank is ready to implement further monetary easing measures should the US economy continue to weaken. Traders immediately jettisoned the dollar on the possibility of ‘QE3’ while equities and commodities surged. However the news that rating agency Fitch had further downgraded Greece to junk status saw stocks pare early gains. Equities were firmer at the close albeit well off their session highs, with the Dow, the S&P, and the NASDAQ advancing 0.36%, 0.31%, and 0.54% respectively.

The index came under further pressure in after-hour trade after Moody’s announced that it had put the US debt rating on review for possible downgrade. The news sent ripple effects throughout the FX markets with the greenback falling against all its major counterparts. As the debate on Capitol Hills rages on, officials will now be under increased pressure to raise the debt ceiling in a timely manner as fears of a possible default take root.

Moodys_Slams_U.S._Dollar_Index_Pierces_Key_Support_body_Picture_4.png, Moody’s Slams U.S. Dollar- Index Pierces Key Support

The index broke through multiple support levels before finding solace just above the 50% Fibonacci retracement taken from the May ascent at 9550. The break below the lower bound trendline of the ascending channel dating back to early June suggests further losses for the greenback with subsequent floors seen at 9520 and the 61.8% retracement at 9500. Topside resistance now stands at 9600 backed by the 23.6% retracement at 9660 and 9700.

Moodys_Slams_U.S._Dollar_Index_Pierces_Key_Support_body_Picture_5.png, Moody’s Slams U.S. Dollar- Index Pierces Key Support

A look at the component currencies attests to the rapid dollar sell-off seen in US trade with three of the four currencies advancing more than 1.22% against the greenback. Highlighting the chart is a 1.51% advance in the aussie which was continued to climb on improving risk appetite and surges in the commodity sector as gold topped record highs. The euro climbed despite the Greek downgrade as traders jettisoned dollar holding across the board. Tomorrow’s economic docket sees a flurry of data from the US with June PPI, retail sales, and weekly jobless claims presenting event risk for dollar crosses. Chairman Bernanke will take center stage once more, this time before the Senate Banking Committee. One thing is certain, with today’s rapid appreciation of the dollar, volatility for the greenback is sure to carry over into Thursday trade.

Upcoming Events

Country

Date

GMT

Importance

Release

Expected

Prior

US

7/14

12:30

LOW

Producer Price Index (MoM) (JUN)

-0.1%

0.2%

US

7/14

12:30

MEDIUM

Producer Price Index (YoY) (JUN)

7.4%

7.3%

US

7/14

12:30

LOW

Producer Price Index Ex Food & Energy (MoM) (JUN)

0.2%

0.2%

US

7/14

12:30

LOW

Producer Price Index Ex Food & Energy (YoY) (JUN)

2.2%

2.1%

US

7/14

12:30

HIGH

Advance Retail Sales (JUN)

0.0%

-0.2%

US

7/14

12:30

MEDIUM

Retail Sales ex Autos (JUN)

0.1%

0.3%

US

7/14

12:30

HIGH

Retail Sales ex Auto & Gas (JUN)

0.4%

0.3%

US

7/14

12:30

LOW

Initial Jobless Claims (JUL 9)

410K

418K

US

7/14

12:30

LOW

Continuing Claims (JUL 2)

-

3681K

US

7/14

13:45

LOW

Bloomberg Consumer Comfort Index (JUL 10)

-

-45.5

US

7/14

14:00

HIGH

Fed Chairman Ben Bernanke Semi-Annual Policy Report

-

-

US

7/14

14:00

MEDIUM

Business Inventories (MAY)

0.8%

0.8%

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

You can also follow Michael on Twitter @MBForex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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14 July 2011 01:31 GMT