Tuesday, May 3, 2011

USD index – Could Stage a Fragile Relief Rally

Currency to watch – USD index

USD index – Could stage a fragile relief rally but…

After hitting intraday high of 73.29 on Osama bin Laden’s death, the dollar index (DXY) extended its decline (73.03) against world's other major currencies amid expectations that the Fed will keep interest rates low to nourish U.S. economic growth despite rising oil and food prices.

Moreover, central banks worldwide are increasing interest rates to fend off inflation, making their currencies more attractive to investors seeking higher yields. The greenback is also losing its shine against global major currencies, reflecting worries about the growing budget deficit in the U.S.

The DXY is now struggling at near the weekly lower Bollinger band of 72.5, which could provide a short term support, due to its extremely oversold readings. However, a breakdown below 72.5 will drive index towards the 71.3 level, its July 08 low. On continued weakness, the Index could revisit its historical low at 70.8 with a violation of that level exposing the 70.00 level and lower downtrend channel of 65.0.

A corrective recovery could push DXY to retest 73.8 (10-d SMA) and 74.5 (20-d SMA). Tougher resistance targets are 75.0 (30-d SMA) and 76.9 (weekly mid Bollinger band).

Monthly USD Index: Critical Support At Historical Low Of 70.8 To Prevent Plunging To 65.0.
USD Index 03-05-2011

Daily USD Index: Prospects Of Rebound Remains Uncertain Despite Oversold Technicals.
USD Index 03-05-2011a

Weekly USD Index: Immediate Supports At Lower Bollinger and 71.3 In July 2008.
USD Index 03-05-2011b

Source: HLeBroking
Source: StockCharts

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