Will Risk-Off Sentiment Leverage a Massive Dollar Rally?
After a six-day tumble - the longest in 18 months - will the US Dollar leverage a slump in risk trends to drive a serious rally this week?
Over the past week, the Dow Jones FXCM Dollar Index (ticker = USDollar) suffered its worst weekly decline since December 2011 and its longest string of daily losses since December 2010. Taken without context, that is a strong bearish sign. However, when we consider the fundamental and technical backdrop; this situation looks like a launching point for a dollar rally.
The Euro has decoupled from surging stock markets despite improved economic data, and was the second to worst performer this past week. What gives?
The British Pound surged higher following the Bank of England (BoE) inflation report, with the exchange rate climbing to a monthly high of 1.5573, and the upward trending channel in the GBPUSD may continue to take shape next week as the economic docket is expected to highlight an improved outlook for growth.
The Australian Dollar looks set continue its recovery, looking past a busy US economic calendar and its market-wide implications for Fed “taper” speculation.
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