Haven Flows See Dollar Strength Accelerating
The dollar was stronger across the board at the close of North American trade today on the back of a broad risk sell-off across asset classes. Traders piled into the safety of the greenback and US Treasuries as ongoing concerns over the crisis in Europe had investors shunning risk. The Dow Jones FXCM dollar index climbed to its highest level in three weeks after testing the lower bound trend line of the ascending channel that has held the index since April 28th. The channel formation remains intact noting interim targets at 50-day moving average, currently at 9693, and the 38.2% Fibonacci retracement taken from the November 30th decline at 9730.
A daily chart show the dollar breaking above the 20 day moving average before encountering resistance at the 23.6% Fib retracement just shy of 9600. Expect the dollar’s strength to continue in the interim as the euro suffers over debt concerns, and commodities soften. Tenchnical indicators also leave room for topside moves, with RSI climbing above the 52 level, and the MACD spread widening. Note that a break below 9520 sees stronger support resting at 9460.
Relative performance of the four equally weighted currencies included in the index tells the story, with the euro seeing the steepest declines with a loss of 1.44% on the session. The high-yielding aussie was not far behind, end the session off 1.36% after moving a staggering 175% of its average true range.
Event risk for the dollar peaks tomorrow with the April retail sales report. Advanced sales are expected to climb to 0.6% from a previous print of 0.4%, while core sales are called higher by just 0.1% to 0.5%. At the same time, weekly jobless claims and the producer price index hits wires with claims expected to print at 430K, down from 474K a week earlier. Consensus estimates call for 0.1% drop in April PPI for a print of 0.6% m/m, while the year on year figure is expected to advance by 0.2% for a print of 2.1% y/y.
Written by Michael Boutros, Currency Analyst for DailyFX.com
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