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U.S. Dollar Index Continues To Gain Ground As Investor Sentiment Remains Weak

U.S. Dollar Index Continues To Gain Ground As Investor Sentiment Remains Weak

2011-05-09 15:10:00
David Song, Currency Strategist
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DJ FXCM Dollar Index

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9577.91

9588.94

9516.42

0.28

106.27%

U.S._Dollar_Index_Continues_To_Gain_Ground_As_Investor_Sentiment_Remains_Weak_body_ScreenShot019.png, U.S. Dollar Index Continues To Gain Ground As Investor Sentiment Remains Weak

The rebound in the U.S. dollar index gathered pace on Monday, with the gauge advancing to a high of 9588.94, and the greenback may continue to recoup the losses from earlier this year as fears surrounding the European debt crisis bears down on trader sentiment. The DJ-FXCM index is 0.28% higher from the open after moving 106% of its average true range, but we may see a small correction over the next 24-hours of trading as the six-day rally remains overbought. However, the V-shaped rebound in the dollar index may gather pace going forward as European policy makers struggle to restore investor confidence, and the greenback may continue to gain ground against its major counterparts as the reserve-currency benefits from safe-haven flows.

U.S._Dollar_Index_Continues_To_Gain_Ground_As_Investor_Sentiment_Remains_Weak_body_ScreenShot020.png, U.S. Dollar Index Continues To Gain Ground As Investor Sentiment Remains Weak

Indeed, the British Pound is threatening the upward trend from earlier this year as the exchange rate tumbles to a fresh monthly low of 1.6270, and the sterling may face additional headwinds later this week as we are likely to see the Bank of England maintain a dovish outlook in its quarterly inflation report, which is due out on May 11. As the recovery in the U.K. cools, BoE Governor Mervyn King may show an increased willingness to support the real economy for most of 2011, and the near-term reversal in the GBP/USD may gather pace going into the second-half of the year as interest rate expectations deteriorate. Moreover, the sharp pullback in the euro looks as though it will accelerate in the days ahead as the EU struggles to stem the risk for contagion, and the Governing Council may continue to soften their hawkish outlook for future policy as the European periphery face record-high financing costs. In turn, any small correction in the DJ-FXCM index could be short-lived, and demands for the greenback may gather pace over the near-term as risk sentiment remains dampened by the uncertainties surrounding the global economy.

Join us to discuss the outlook for the major currencies on the DailyFXForums

To discuss this report contact David Song, Currency Analyst: dsong@dailyfx.com

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