USD Graphic Rewind: Super-Euro Has No Kryptonite; Dollar Index Suffers
The euro has once again proved itself impervious to negative headlines, a weak fundamental outlook and fresh concerns over the EMU debt crisis as speculative trade continues to dominate. After the resignation of PM Socrates in Portugal and the subsequent downgrade as well as a bickering group of EU leaders meeting at present in Brussels is far from soothing investor fears about the still rampant debt crisis in the EMU. Nevertheless the market seems repeatedly capable of shrugging these concerns off and pressing the euro higher as it bets on the ECB raising interest rates in the near-term to tackle growing inflationary pressures. Little thought, it seems, has been given to the effect of higher interest rates on these already highly indebted nations.
Turning back to the dollar index, yesterday’s bearish outside day negates the potential short-term bottom that was possibly forming and suggests further downside movement is likely. There isn’t much in the form of downside targets ahead of 2009 lows just above 74.00 which is still some ways off, but not totally unrealistic considering recent price action. In the medium-term we still believe that these speculative bids will come out of the euro which will then be traded on the rather bleak fundamental picture in the EMU and as a result will suffer versus the buck. However, efforting when this capitulation in the euro will finally happen is the tricky part but it is unlikely to happen until either the ECB hikes rates or pours cold water on market hopes of a rate hike.
Written by Jonathan Granby, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.