Cautious Optimism Toward Dollar Index Gains in New Week
The Dow Jones FXCM Dollar Index (ticker: USDollar) closed modestly lower last week after breaking above range highs to touch the 9,800 level. While we remain very bullish on the dollar index at this juncture, encouraged over the weekend by developments out of Greece which make a default increasingly likely. In any event, we feel it necessary to add a modest caution to entering long positions at current levels. We have highlighted repeated, including last weeks, range highs posted, or even broken, followed by a negative weekly close and subsequent move to the downside. After last weeks topside break but lower weekly close we suggest taking to the sidelines until we confirm that this pattern will not be repeated and a move back to the downside will be avoided.
As we mentioned above we are very bullish on the index and considering reports out of Greece this weekend that the EU/ECB/IMF mission is adding to the austerity measures they expect Greece to adopt before handing over more bailout funds we expect further losses for the beleaguered euro. In direct correlation to the declines of the euro the dollar index should continue climbing toward the 10,000 level. In addition to a soft euro boosting the buck with the yen and franc effectively useless as safe haven plays flows of this nature should continue to flow into the greenback propping the currency further.
Written by Jonathan Granby, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.