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Dollar Tumble Impressive Technically, Capable Fundamentally

Dollar Tumble Impressive Technically, Capable Fundamentally

John Kicklighter, Chief Strategist

Talking Points:

  • The Dollar's tumble after the Fed decision continues with a technical development that suits a reversal
  • While the Greenback can slide as its previous untouchable rate advantage fades, it isn't a universal opportunity
  • Without an indisputable rate advantage, USD will be far more sensitive to changes in Fed rate and risk views

See how retail traders are positioning in the Dollar as the currency tumbles with the FXCM SSI readings on DailyFX's sentiment page.

The Dollar's tumble this week carries serious weight. From the technical side, the USDollar Index broke its 10-month rising trend channel last week with the strong impact of the ECB response. However, it was the post-FOMC move that solidified former support as new resistance and then projected the strongest downdraft in over two years. That sounds like the makings of a more substantial reversal. Certainly, the Greenback has more premium to bleed; but it is unlikely to simply freefall against all counterparts. A weakened US backdrop is still substantially more stable and appealing than many other economies and markets around the world. Should the reserve currency continue to slide, it is best served under the proper conditions and against the right counterparts. AUDUSD and USDCAD are arguably better able to leverage Dollar weakness founded on deflated rate views than EURUSD and USDJPY. However, the 'risk' aspect of the market alters those those standings. With both themes considered, GBPUSD may be the most capable overall. We look at the Greenback's change in tide in today's Strategy Video.

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