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U.S. Dollar Index Gives Back After Being Overbought

U.S. Dollar Index Gives Back After Being Overbought

2011-05-12 17:41:00
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

9594.76

9658.88

9582.84

-0.06

97.21%

U.S._Dollar_Index_Gives_Back_After_Being_Overbought_body_ScreenShot040.png, U.S. Dollar Index Gives Back After Being Overbought

The DJ-FXCM U.S. dollar index pared the overnight advance to 9658.88 after being overbought, but the small pullback is likely to be short-lived as trader sentiment remains battered. The index remains just 0.06% lower on the day after moving 97% of its average true range, and the greenback should continue to benefit from safe-haven flows as uncertainties surrounding the global economy bears down on investor confidence. In turn, the rebound from the yearly low (9337.19) should gather pace going forward, and market participants may continue to scale back their appetite for risk as the Federal Reserve looks to conclude its easing cycle going into the second-half of the year.

U.S._Dollar_Index_Gives_Back_After_Being_Overbought_body_ScreenShot039.png, U.S. Dollar Index Gives Back After Being Overbought

The U.S. dollar index was certainly carried lower by the ongoing weakness in the Australian dollar and British Pound, while the Euro recouped the losses from the overnight trade, advancing 0.52% on the day. However, the single-currency remains at risk of facing lower prices as European policy makers struggle to contain the sovereign debt crisis, and the EUR/USD may work its way back towards 1.4000 as it searches for support. The euro-dollar certainly appears to be carving a head-and-shoulders top in May, and European Central Bank President Jean-Claude Trichet may continue to soften his hawkish outlook for monetary policy given the heightening risk for contagion. In turn, interest rate expectations are likely to deteriorate in the second-half of the year, and the Governing Council may continue to delay its exit strategy further as the economic outlook for Europe remains clouded with high uncertainty.

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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