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U.S. Dollar Benefits From Risk Aversion, Index Eyes 9800

U.S. Dollar Benefits From Risk Aversion, Index Eyes 9800

2011-05-11 15:42:00
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

9541.97

9565.8

9487.96

0.20

103.09%

U.S._Dollar_Benefits_From_Risk_Aversion_Index_Eyes_9800_body_ScreenShot032.png, U.S. Dollar Benefits From Risk Aversion, Index Eyes 9800

The U.S. dollar gained ground on Wednesday, with the DJ-FXCM index climbing to a high of 9565.80, and the reserve currency may appreciate further as risk aversion flows back into the foreign exchange market. The dollar index remains 0.20% higher from the open after moving 103% of its average true range, and we may see a small correction later today as the 30-minute relative strength index falls back from overbought territory. However, the gauge looks poised to make another run at 9600.00 as currency traders scale back their appetite for yields, and the near-term rebound in the greenback may gather pace going into the end of the week as the fundamental developments coming out of the world’s largest economy is expected to reinforce an improved outlook for growth and inflation.

U.S._Dollar_Benefits_From_Risk_Aversion_Index_Eyes_9800_body_ScreenShot033.png, U.S. Dollar Benefits From Risk Aversion, Index Eyes 9800

Three of the four components of the DJ-FXCM dollar index weakened on Wednesday, led by a 0.73% decline in the Euro, but the British Pound is certainly outperforming against its major counterparts as the Bank of England adopts a hawkish outlook for monetary policy. As the U.S. retail sales report is expected to show a 0.6% expansion in household spending, the 10th consecutive increase in private sector consumption should spark a bullish reaction in the U.S. dollar, but the data could also generate a rebound in risk appetite, leading the index to consolidate ahead of the weekend. However, fears surrounding the sovereign debt crisis may continue to bear down on market sentiment as European policy makers struggle to manage the risk for contagion, and the single-currency is likely to face additional headwinds over the near-term as the Governing Council may have little choice but to delay its exit strategy further. At the same time, the intraday reversal in the Australian dollar appears to have slowed ahead of the 20-Day SMA at 1.0740 as the exchange rate bounces back from at low of 1.0747, and the high-yielding currency may continue to recoup the losses from earlier today as employment in the isle-nation is expected to increase another 17.0K in April following the 37.8K expansion in the previous month.

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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