USD Graphic Rewind: Dollar Index Falls On Bini-Smaghi Comments
The dollar index suffered its second day of setbacks after failing early in the day, again, to overcome resistance around the 76.50 level. After trading relatively quietly for much of the European morning comments by ECB Bini-Smaghi which indicated that the central bank will be embarking on a series of rate hikes, not just one, sparked gains in the euro. The comments which were relatively vague were interpreted as euro positive and managed to undo all the work done by Fed hawkish sentiment over the last few days which saw the buck rise. As ECB rate hike speculation moves back to centre stage and with many now expecting more than one hike in the near future we expect further losses to be seen in the index as the euro is pressed higher on expected widening of yield differentials versus the greenback.
Over-night the inex extended its losses toward the 76.00 support level as Japanese exporters reentered the Usd/Jpy market and bought up the yen after 5-days of weakening. This has also taken some wind out of the buck as the yen experiences a bout of strength. Looking to the day ahead, there is a significant risk that the index could move sharply lower as events conspire against the buck, however, recent trade has been relatively lackluster and moves may be of a more muted.
Written by Jonathan Granby, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.