USD Graphic Rewind: Dollar Index Soft but Near-Term Outlook Unchanged
The dollar index had a choppy day of trade on Monday as investors remain uncertain whether the latest bout of USD strength is the beginnings of a period of dollar strength or should rather be used as a good fresh opportunity to sell the beleaguered currency. As such, we see in the early day moves toward the 76.50 region were met with intense selling pressure that drove the index back to the 76.00 region before finding some bids. As US equities ran out of steam late in the session and ultimately closed lower on the day the greenback rose back to the 76.25 level, which once again was met with selling pressure.
Over-night as Asia/Pacific equities oscillated between small gains and small losses until the final stretch which saw many bourses paring their losses and some broke into higher ground, lifting riskier assets, including the euro. Additionally aiding the euro in the early week is fresh speculation about imminent rate hikes as various ECB speakers throughout the week are expected to signal higher rates in an effort to tackle inflation. However, we are not throwing in the towel just yet on this recent buck rally since we believe that the euro will encounter ‘buy the rumour, sell the fact’ selling as we near and rate action by the ECB, with interest rate hikes now well priced in. As we mentioned yesterday, with the short-term base now in place, we expected some congestion between the 76.50-77.50 region and so yesterday’s setbacks haven’t changed our near term bullish outlook much, only a break and close below 76.00 negates.
Written by Jonathan Granby, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.