USD Graphic Rewind 07.21
USD INDEX GRAPHIC REWIND
The dollar index found itself mimicking its early moves from Monday on Tuesday, whereby the euro rallied at the European session open above 1.30 but was unable to establish a solid footing above the key level and fell back below. This is the move we can see on the left side of the above chart, a large portion of the dollar's climb was thanks in large part to the euro crashing some 100-points lower along with Sterling's collapse, buoying the dollar. Unfortunately for the dollar at the peak of this move more soft US data came out and weighed on the index and any dollar bulls who may have considered an inflection point for the dollar. Throughout the rest of the day the index remained largely range bound as players decided not to make any big moves ahead of Fed Chair Bernanke's testimony later today.
Looking ahead, traders will be watching Bernanke's comments very closely for any indication of future hikes or improvements in the US economy. The recent relative weakness in the dollar was sparked by the lowering of the growth outlook for the US by the Fed several weeks ago. It is our assertion that more dovish comments from the Fed Chair will lead to more dollar losses extending its period of weakness, however, the slightest morsel of hawkishness might be enough to spark a dollar rally.
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