U.S._Dollar_Decline_Hastens-_Index_Hits_Monthly_Low_body_Picture_2.png, U.S. Dollar Decline Hastens- Index Hits Monthly LowU.S._Dollar_Decline_Hastens-_Index_Hits_Monthly_Low_body_Picture_3.png, U.S. Dollar Decline Hastens- Index Hits Monthly Low

The greenback was weaker for a third consecutive day in North American trade with the Dow Jones FXCM Dollar Index (Ticker: USDollar) off a staggering 0.86% on the session. Risk appetite remained elevated today as equities closed out a stellar performance with the Dow, the S&P 500, and the NASDAQ surging 1.21%, 1.35% and 0.72% respectively. The EU Summit revealed officials had reached consensus on a way to stem the threat of contagion across the region. Meanwhile markets had rallied throughout the day as stronger than expected corporate earnings and a significant pick in risk appetite once again saw traders chasing yields.

The dollar index continued to plummet, breaking below interim support at 9515 before finding solace around the 9460 mark. As cited in yesterday’s USD Trading Today report, the greenback is likely to remain on the defensive after breaking below long term trendline support of the ascending channel dating back to the late April advance. The RSI and MACD indicators also suggest that the dollar may have further to go as traders continue to jettison the ‘reserve currency.’

U.S._Dollar_Decline_Hastens-_Index_Hits_Monthly_Low_body_Picture_4.png, U.S. Dollar Decline Hastens- Index Hits Monthly Low

An hourly chart shows the index holding within the newly formed descending channel, closing just above interim support at the 76.4% Fibonacci extension taken from the May advance at 9440. Subsequent floors are seen lower at 9370 with a break below lower bound trendline support eyeing the 100% retracement at 9337. Topside resistance now stands at 9525 backed by the 50% retracement at 9550 and 9600.

U.S._Dollar_Decline_Hastens-_Index_Hits_Monthly_Low_body_Picture_5.png, U.S. Dollar Decline Hastens- Index Hits Monthly Low

All four of the component currencies once again advanced against the greenback highlighted by a 1.14% rise in the euro which rallied on the back of the EU Summit in Brussels. The euro moved more than 168% of its daily ATR as officials displayed unified support for the Eurozone and its indebted periphery nations. The leaders empowered the EFSF to purchase debt from ailed euro nations in order to stabilize soaring yields fueled by concerns of default. Meanwhile Greece looks to receive another 160B Euros in additional aid while the terms of the existing loans were softened on a pledge form Prime Minister Papandreou that the nation would achieve financial stability through the recently implemented reforms. The news was well received with markets extending gains into the close of trade in New York.

There is no data on tomorrow’s economic docket form the US. Dollar price action will largely be directed by shifts in risk sentiment and news regarding the looming August 2nd debt ceiling deadline. Although the greenback is expected to weaken further in the days ahead, the US Dollar Index may see a reprieve in the interim as we hold above the 9450 level.

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or subscribe to their daily analysis, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForex.