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Dollar Index Pares Gains but Looks to Hold Up-Trend

Dollar Index Pares Gains but Looks to Hold Up-Trend

2011-05-12 22:07:00
Michael Boutros, Technical Strategist
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Dollar_Index_Pares_Gains_but_Looks_to_Hold_Up-Trend_body_Picture_4.png, Dollar Index Pares Gains but Looks to Hold Up-TrendDollar_Index_Pares_Gains_but_Looks_to_Hold_Up-Trend_body_Picture_1.png, Dollar Index Pares Gains but Looks to Hold Up-Trend

The greenback ended the day on a softer note after a mid-day turn in risk sentiment saw equities and commodities reverse earlier losses. The Dow Jones FXCM dollar index closed virtually unchanged on the session after testing the upper bound trend line resistance level in North American trade. With no apparent catalyst of note, the dollar’s reversal lacked conviction and may still seek further gains in the days to come.

The ascending channel dating back to April 28th remains intact noting interim support at 9590 backed by 9550 and the lower bound trend line, currently at 9520. Resistance is seen at the upper bound trend line at 9650, with a topside break of the channel eying targets at the 38.2% Fibonacci retracement taken from the November 30th decline at 9728.

Dollar_Index_Pares_Gains_but_Looks_to_Hold_Up-Trend_body_Picture_10.png, Dollar Index Pares Gains but Looks to Hold Up-Trend

A daily chart of the index sees RSI holding mid-level while the slope of the 20 and 50-day moving averages continue to flatten, suggesting the greenback may lose some steam before climbing any further. A weekly close above the 23.6% Fib retracement would back the dollar’s advance this week.

Dollar_Index_Pares_Gains_but_Looks_to_Hold_Up-Trend_body_Picture_7.png, Dollar Index Pares Gains but Looks to Hold Up-Trend

With no clear resolution emerging out of Europe, and continued concerns over the periphery nations, the euro’s troubles are far from over. Still, the single currency was able to close 0.37% higher on the day as officials continued to deny that a Greek debt restructuring was on the table. Meanwhile the pound and the Australian dollar split losses against the greenback as disappointing employment figures overnight weighed on the aussie, and weaker than expected industrial production figures had traders slashing rate hike expectations from the Bank of England.

Tomorrow’s economic calendar sees GDP figures from Germany and the Eurozone with both expected to post modest gains to growth. The US follows with April CPI figures and the University of Michigan confidence surveys. As inflation concerns around the world gather more attention, traders will be closely eying tomorrow inflation figures. Consensus estimates call for a print of 0.4%m/m, down from a previous read of 0.5% m/m, while the year on year figure is expected to rise to 3.1% from a previous print of 2.7% y/y. Finally, the May University of Michigan confidences figure is seen rising to 70.0 from 69.8. Better than expected data tomorrow could keep the dollar index on its current trajectory, upsetting the dollar bears.

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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