Dollar Index Consolidates Before Next Topside Extension
We have been very pleased with price action in the Dow Jones FXCM Dollar Index (ticker: USDollar) in recent sessions and days as it consolidates its hefty climb from the 9,400 region to above 9,700. The consolidation and tempering of gains below 9,800 in the last few days encourages our constructive outlook for the index as it steadies before the next upward extension. If this consolidation hadn’t taken place we would start to be concerned about over-extension of the index rally, however, the pause in recent days gives us full confidence that the index can build on this platform to rally toward the 10,000 level.
There have been multiple drivers of recent greenback gains – SNB action, liquidation of higher yielding assets – but none as large as the euro’s collapse. With the EMU now teetering on the edge of a full blown solvency melt down with banks and sovereign natiosn simply unable to meet obligations or the exit of Greece or Germany from the EMU things are looking bleak for the euro. With China, and other BRIC nations, unwilling to ride headfirst into the storm the euro-region is going to have to figure things out for itself and considering the political differences faced the likelihood of them being able to pull such an action off with drastic changes are slim. Therefore, with safe haven flows now heading back into the buck and the euro on the brink of collapse we favour continued strength for the dollar index.
Written by Jonathan Granby, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.