USD Graphic Rewind: Dollar Index Slides on EFSF Expansion; Rebounds on Nikkei Rout
The dollar index lost ground on Monday as the euro benefited from the news that the EMU has agreed to expand its EFSF rescue fund. Despite the various geopolitical and natural disaster related tensions the buck remained under pressure throughout the day and moved back toward 2011 lows posted a week earlier. Respite, however, was found in Asia trade as further explosions took place at Japanese nuclear reactors damaged by the earthquake and tsunami. As investors responded to these developments and the official comments they fled from Japanese assets sending the Nikkei tumbling by double-digits. The sell-off dragged down bourses across the region and sent US futures sharply lower as investors sought safety.
Ensuing trade has been risk negative with risk and commodity exposed currencies getting hardest hit on expectations of a slowdown in the global recovery. Safe haven plays are fairing the best as investors pull money out of higher yielding assets, especially the Australian dollar where a rate cut from the RBA is now being anticipated as soon as their next meeting. The turmoil looks set to continue as global equities react to the sell-off and risk is certainly likely to remain on a low ebb for the rest of the day.
For the dollar index, despite bouncing smartly over-night and erasing most of yesterday’s drop downside pressures remain prevalent. If we are witnessing a significant shift in the structure of the market on the back of the Japanese crisis we may see the buck mount a more meaningful recovery, however, until that happens the downside remains vulnerable.
Written by Jonathan Granby, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.