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USD Graphic Rewind: Trichet Ignites Biggest US Dollar Rally Since 2009; Bullish Outside-Week Forming

USD Graphic Rewind: Trichet Ignites Biggest US Dollar Rally Since 2009; Bullish Outside-Week Forming

2011-05-06 06:58:00
Jonathan Granby,
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USD_Graphic_Rewind_body_dxy5.png, USD Graphic Rewind: Trichet Ignites Biggest US Dollar Rally Since 2009; Bullish Outside-Week Forming

The dollar rose by the most since January 2009 against the euro on Thursday after the ECB President Trichet omitted the kind of language that traders were expecting to indicate another rate hike was coming in the Euro-zone. This less hawkish than expected outcome from Trichet, which sank the euro, was coupled by the much softer than expected US jobless claims data which propelled the buck as equities lost ground. As US dollar gains extended into US afternoon trade commodities and equities suffered a rout as traders were forced to reverse short positions against the buck. The dollar index rose sharply, putting in its best performance since August of last year.

USD_Graphic_Rewind_body_dxy.png, USD Graphic Rewind: Trichet Ignites Biggest US Dollar Rally Since 2009; Bullish Outside-Week Forming

On daily charts things look a tad stretched after yesterday’s sharp gains and making sense of such a move will take time until we can ascertain whether this recent strength is here to stay. Looking, however, at a weekly chart we can see something much more interesting with longer-term implications; as we can see above this weeks candle is near on posting a bullish-outside week (matched by the near bearish-outside week in Eur/Usd). The index needs to extend its gains above last weeks high of 74.35 which is only 10-ticks off the current high and close in positive territory for the week to confirm the very bullish pattern. This would be an excellent first step for the index if the buck is to undergo a period of relative strength. Watch this space.

Written by Jonathan Granby, DailyFX Research Team

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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