Short-Term Dollar Reversal Imminent- Index Approaching Key Support
The dollar fell against all of its major counterparts today as a string of weaker than expected economic data fueled speculation that the Fed may maintain its accommodative policy past the June deadline, keeping rates at record lows. The Dow Jones FXCM Dollar Index broke below support at the lower bound trendline of the ascending channel dating back to April 28th. The index finds itself carving a fresh 75 point descending channel, with interim support now eyed at the 9600 level. Note that there is slight divergence seen in the MACD oscillator, indicating the dollar’s recent month long rally may be reaching its end. Dollar weakness is expected to carry over, with immediate targets set at the 23.6% Fib retracement.
Topside resistance holds at the 50-day moving average, with subsequent ceilings eyed at the 38.2% Fibonacci retracement taken from the November 30th decline at 9728 and 9815. A break of the short-term channel at 9600 sees targets directly under at the key 23.6% retracement at 9590. The index will encounter stronger support at the 20-day moving average, currently just above the 9520 level.
Relative performance attests to the greenback’s loss of momentum today, with all the majors advancing against the dollar. The top performer of the component currencies was the pound which benefitted from a stronger than expected print on retail sales data overnight. Recall that the pound saw the steepest declines versus the dollar yesterday after dovish BoE minutes and a disappointing employment report saw traders dumping the pound. With no data on tomorrow’s economic docket, volatility is expected to remain modest ahead of the weekend.
Written by Michael Boutros, Currency Analyst for DailyFX.com
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