USD Graphic Rewind: Fed Bullard's Hawkish Comments Lift Buck; Outlook Remains Murky
Despite only managing to close flat on the day yesterday we feel relatively good about our bullish near-term outlook for the greenback. The sentiment towards the buck seems to be slowly shifting back toward a brighter outlook having been beaten down for several months. This outlook was brightened further after ultra-dove Fed. Bullard commented that the FOMC may not wait for all the uncertainties around the globe to be resolved before beginning to normalize monetary policy. This decidedly more hawkish stance gave the buck a large boost as interest rate speculation began to flow from the pound and euro into the buck. The recent softness in the buck had been on the back of expectations that the ECB and BoE would likely hike rates in coming months while the Fed was likely to maintain its ultra-accomdative stance through most of 2011, this shift should help lift the buck in coming days and weeks.
The dollar index has put in a short-term bottom, we will wait to see if this will be confirmed as a more meaningful bottom in the future on longer term weekly and monthly charts. However, despite this bottom being in place it still remains in a downtrend and this upper-falling trend line has been capping gains so far. It is crucial for downside pressure not to be renewed that the index break above this upper-falling trend line and close above it, and ideally above 76.50. If the index fails to do so, this pocket of strength being experienced by the buck may be short lived.
Written by Jonathan Granby, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.