USD Graphic Rewind 07.28
It was a choppy day for the dollar index Tuesday, as we can see above it suffered at the hands of some whipsaw price action in the first half of the day. The initial dip lower came on the back of more excellent data from the UK which bolstered risk appetite early in the European session, lifting equities and higher-yielding FX. The reversal higher is really an interesting piece of price action, since the initial move higher came on the back of an improvement in the Case-Shiller home price index - dollar rallying on stronger US fundamentals. Then as a weak US consumer confidence report came in, we would have expected the dollar to show some weakness, by virtue of the fact that traders are largely ignoring the dollar as a safe haven play and trading it on US fundamentals. However, this was not the case and the dollar pushed higher, we put this down to the fact that equities were weakening at this point and any dollar weakness from the soft consumer confidence reading was negated. The index calmed down in the NY afternoon and showed a bid tone going into the Asian session after US equities closed shakily. However, solid earnings in Tokyo helped lift markets early and gave risk appetite some momentum back which saw the dollar slip once again.
Looking ahead, another very quiet economic calender in Europe will keep traders trading fundamentals and macro-issues which should see the dollar weaken since its fundamentals are perceived to be in worse condition than the EMU's. However, the wobbly finish on Wall St yesterday and weakness in the commodity currency bloc could lead to some volatile trade conditions in the coming sessions.
Written by Jonathan Granby, DailyFX Research Team
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