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Dollar Losses Halt at Trendline Support- Formation Holds

Dollar Losses Halt at Trendline Support- Formation Holds

2011-05-24 21:41:00
Michael Boutros, Technical Strategist
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Dollar_Losses_Halt_at_Trendline_Support-_Formation_Holds_body_Picture_2.png, Dollar Losses Halt at Trendline Support- Formation HoldsDollar_Losses_Halt_at_Trendline_Support-_Formation_Holds_body_Picture_3.png, Dollar Losses Halt at Trendline Support- Formation Holds

The ascending channel that has held the Dow Jones FXCM US dollar index remains intact despite the pullback seen today in North American trade. The greenback was weaker against all the majors after failing to break through the 38.2% Fibonacci retracement taken from the November 30th decline at 9730. Although the dollar reached as high as 9764 overnight, returning risk appetite continued to see the greenback on the defensive. The advance seen in risk assets and high-yielding currencies lacked conviction however with the Dow, the S&P 500 and the NASDAQ closing lower by 0.20%, 0.08% and 0.46% respectively. The US dollar index remains in the channel formation that has held since April 29th, closing just above trendline support the 9700-level.

Dollar_Losses_Halt_at_Trendline_Support-_Formation_Holds_body_Picture_4.png, Dollar Losses Halt at Trendline Support- Formation Holds

A daily chart reveals the sharp pullback seen in the index after closing above the 38.2% Fib retracement yesterday. Losses for the dollar may be short-lived however as global growth concerns persist. A break of the lower bound trendline sees subsequent floors at the 50-Day moving average at 9660, and just above the 23.6% Fib retracement at 9610. Topside targets are eyed at 9740 backed by the convergence of the 100-Day moving average and the 76.4% Fib extension (Ghosted) taken from the 2009 and 2010 crests around 9815, and 9950.

Dollar_Losses_Halt_at_Trendline_Support-_Formation_Holds_body_Picture_5.png, Dollar Losses Halt at Trendline Support- Formation Holds

The index’s component currencies strengthened across the board as commodities and risk currencies pared some of the steep losses seen on Monday. The Australian dollar was the best performer against the greenback after the head of the government’s debt management office said the aussie was gaining favor as a global reserve currency. The sterling was exceptionally volatile today, moving more than 108% of average true range to close higher by 0.37% on the session. UK GDP figures overnight will be closely eyed by traders after the BoE cited risk to domestic growth remains to the downside, while the risk of inflation remains to the upside. A weaker than expected print will likely see rate hike expectations diminish, pressuring the pound lower and keeping the Dow Jones FXCM US dollar Index afloat.

Economic data out of the US tomorrow will likely dictate price action for the greenback, with April durable goods orders and the March house price index printing at 8:30am ET and 10am ET respectively. Durable goods are expected to fall by 2.5%, down from a previous upwardly revised gain of 4.1% a month earlier, while the house price index is seen printing at -0.5% m/m.

GMT

Importance

Release

Expected

Prior

12:30

MEDIUM

Durable Goods Orders (APR)

-2.4%

4.1%

12:30

MEDIUM

Durables ex Transportation (APR)

0.5%

1.3%

12:30

MEDIUM

Capital Goods Orders Non-Defense ex Aircrafts (APR)

-2.0%

3.7%

12:30

MEDIUM

Capital Goods Shipments Non-Defense ex Aircrafts (APR)

-

2.2%

14:00

MEDIUM

House Price Index (MoM) (MAR)

-0.5%

-1.6%

14:00

MEDIUM

House Price Purchase Index (QoQ) (1Q)

-

-0.8%

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or to subscribe to his daily analysis please sends 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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