USD Graphic Rewind 07.14
USD INDEX GRAPHIC REWIND
The dollar index slumped around 100 points yesterday as risk appetite came roaring back and investors shrugged off negative news. Early in the European session Portugal was downgraded two notches by Moody's and sentiment looked like it would turn negative for the rest of the day. However, European traders pushed this news aside and sent equities marching higher on the firm earnings beat by Alcoa and expectations that corporate earnings will continue to be strong. Early in the US session sentiment again looked like it could take a knock as the US trade balance unexpectedly widened, instead of narrowing as was forecast, once again traders shrugged this news off and bought risker assets and sold the dollar (and yen). Intel's return to profit and subsequent beating of earnings expectations solidified the 'risk-on' trend into the Asian session which saw tech stocks lead the way higher. The dollar managed to stabilise in the Asian session as the euro failed after repeated attempts to breach the NY high and retreated from its highs to trade marginally lower this morning.
Looking ahead, investors must now decide if there is enough impetus to drive the euro higher or will its failure to breach resistance levels prove too heavy a weight to overcome. The dollar's direction will largely be dictated by outside factors and not US fundamentals or dollar trends. However, we do not expect to see the dip extend too much further as dollar bulls will see these lows as excellent entry points.
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