USD Graphic Rewind: Dollar Index Posts Higher Close As Euro Fails By 1.40

The dollar index managed to reverse early losses and climb off the lowest levels since early November 2010. The index managed to post its first higher daily close in the last four days but is unlikely to shift the structure. The index remains all but set to test 2010 lows at 75.62 before putting in any kind of meaningful bounce. However, price action at present is being dominated by Eur/Usd’s repeated attempts to establish itself above the psychological resistance at 1.40. So far unsuccessful if the euro fails to overcome this barrier if a top is formed and the euro begins to move lower in coming sessions and days then we will see the index move higher ahead of testing those lows. However, if the euro does manage to post a close above 1.40 it exposes highs at 1.4280 which will certainly see the index move down to 2010 lows, if not lower.

 

On a fundamental basis we remain astounded by the relative USD weakness, versus the euro in particular. Traders continue to shrug off serious debt concerns in the EMU, as well as a lack of traction to the recovery in peripheral economies. Traders are purely focused on the possibility of interest rate hikes, which may come as soon as April, and the German recovery, not the EMU as a whole We believe this is a perverse and short-sighted approach since the underlying fundamentals supporting the EMU are wobbly at best. On the other hand, the US economy continues to gain traction, the jobs market is making slow, but steady, progress and on the whole the recovery is in good shape. Nonetheless, the buck can’t catch a meaningful bid against the euro as speculative trade drives price action. As such, maintaining our slightly more medium/long-term view of things we remain bullish on the buck as the still not resolved issues in the EMU will come back to weigh on investors soon. And the widening gulf between core EMU nations and the periphery threatens to cause political as well as economic turmoil.