Equally Weighted Dollar Index Eases on Euro
The Dow Jones FXCM dollar index was softer at the close of North American trade today amid a quiet session that saw equities slide on subdued risk appetite. The ascending channel that has held the index since April 28th remains intact, noting interim support at 9630 followed by 9590 and the lower bound trend line currently at 9565.
A daily chart shows the index reversing just ahead of the 50-day moving average at 9681. A topside break sees subsequent ceilings at the 38.2% Fibonacci retracement taken from the Nov 30th decline at 9728. As noted, interim support rests lower at the 23.6% retracement at 9591 with stronger long-term support eyed at 9520.
The equally weighted index fell as the euro advanced more than 0.25% after EU officials approved a bailout packaged for debt stricken Portugal. Looking ahead, traders will be eyeing tomorrow’s CPI data out of the UK for an update on the pace of inflation. The BoE follows the report with minutes from the May 5th policy meeting on Wednesday. A shift in interest rate expectations could weigh on the dollar as the Fed is largely seen holding rates at record lows well into year end.
Concerns over the US fiscal position may also start to have a more pronounced impact on the greenback in the days to come as the government hits its debt ceiling. As of now, investors remained calm with treasury prices rising on optimism that officials will be able to strike a deal to raise the debt limit and avert a possible default. But as Europe’s most indebted periphery nations continue to make headlines, investor sentiment could quickly turn on the dollar if government officials are unable to reach a consensus.
Written by Michael Boutros, Currency Analyst for DailyFX.com
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