Diminishing Risk Appetite Sees Dollar Index at Six-Week Highs
The Dow Jones FXCM dollar index surged today after a another mid-day rout in equities saw the index pare early losses to test the upper bound trend line of the ascending channel that has held since April 28th. The dollar encountered resistance at the 9775 level where it held into the close. As noted in yesterday’s dollar wrap-up report, further upside potential is likely as the recent declines lacked enough fuel or conviction to derail the greenback’s assent.
A break above the upper bound trend line resistance level sees subsequent ceilings at the 50-day moving average currently at 9585 and at the 38.2% Fibonacci retracement taken from the November 30th decline at 9728. Support rests lower at 9550 backed by 9495 and 9420.
A look at the daily chart attests to the dollar’s surge on the back of heightened risk aversion. RSI and a widening MACD spread suggest room for further upside potential on the index. Note that the longer-term descending channel remains intact. The greenback would need a break above the upper bound trend line for a confirmation of the longer-term trend reversal.
The equally weighted index advanced against all the component currencies save the yen. Despite stronger than expected GDP figures out of Europe, ongoing concerns over the possibility of a Greek debt restructuring/extension and a sharp risk sell-off in the US session saw the euro plummet nearly 1% against the greenback with single currency moving 156% of its average true range. The Australian dollar felt the brunt of today’s haven flows with the aussie falling more than 1% as gold remained on the defensive, falling more that 0.70% on the session.
Looking ahead to next week’s economic docket, traders will be closely eyeing housing data on Tuesday, with the April housing starts and building permits on tap. Housing starts are expected rise by 3.5% m/m down from a previous read of 7.2% m/m, with building permits called higher by just 0.3% down from a sharp 11.2% gain a month earlier. Industrial production figures are also released on Tuesday with consensus estimates calling for print of 0.4%, down from the previous read of 0.8%. Weaker than expected prints could keep risk appetite subdued next week, providing added support for the greenback.
Written by Michael Boutros, Currency Analyst for DailyFX.com
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