USD_Graphic_Rewind_body_dxy3.png, USD Graphic Rewind: Dollar Index Set to Extend Gains on China Deficit

The dollar index handled the first real test ahead of mounting a more meaningful recovery on Wednesday in fine form. The index did close lower but only mildly and remained well above recent lows and didn’t move back below 76.50. The only real bout of pressure came ahead of the US open when the ECB was said to be out checking rates of EMU periphery debt and was reported as an active buyer which gave the euro a mild boost. The euro, however, was unable to hold onto these gains and ended the day flat and has subsequently (in the over-night session) moved lower once again.

Over-night and after yesterday’s solid performance by the buck the index is moving higher again, largely on the risk negative news that China unexpectedly posted a trade deficit for February, the largest in seven years. As equities and risk exposed currencies retreat the greenback is making gains across the board. Looking to the upside, the index needs to move above recent highs just below 77.00 and after that breach the falling trend line (which we spoke about yesterday) which comes in at 77.30. If the index can move above these near-term resistance levels then we could see a more significant recovery for the buck take hold.

Written by Jonathan Granby, DailyFX Research Team