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USD Graphic Rewind: Seeing Early Signs That USD Strength is Winding Down

USD Graphic Rewind: Seeing Early Signs That USD Strength is Winding Down

2011-05-24 06:46:00
Jonathan Granby,
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USD_Graphic_Rewind_body_dxy5.png, USD Graphic Rewind: Seeing Early Signs That USD Strength is Winding Down

Dow Jones FXCM Dollar Index, created using Bloomberg

The dollar index climbed smartly for a second consecutive day as euro liquidation continued apace as fears continue to mount regarding the solvency of Greece, Italy, Spain and Belgium. As spooked investors sought safety in gold and safe haven FX, equities took a beating along with riskier, higher yielding FX. As a result the buck added another day of gains and nears the key 9800 level as the euro looks to test support of 1.40 and the 100-day SMA just below, once these are taken out we favour the index retaking the 9800 level.

USD_Graphic_Rewind_body_dxy.png, USD Graphic Rewind: Seeing Early Signs That USD Strength is Winding Down

However, despite being bullish on the USD and bearish on the euro at present we see the possibility arising whereby USD gains are beginning, already, to peter-out. Looking at this daily chart we see the extreme right candle (today’s) is currently in negative territory as market consolidate recent moves. This fits perfectly into the recent trend whereby the index has made sharp, significant gains in a short period and then consolidated. Where we see some cause for concern is the shortening period during which the index is climbing; off its lows in early May the index climbed for 5 consecutive days, then consolidated, the next spurt was only three days before consolidating and most recently the index only climbed for two days and is now consolidating. While it is certainly too early to say the dollar’s run is over, we will be watching this space very carefully to see how things develop in coming sessions and days.

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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