Once again, the volatility returned to the market and the mixed sentiment is evident, yet in a blunt reasoning, the dollar’s freefall which was extensive and overrated is gradually coming to terms to the economic reality.
The dollar is surely dominating the scene today and gains for greenback are the most across the board. The dollar index, which gauges the performance of the federal currency against six major rivals, was trading higher into the European session ahead of data queued for release form the United States.
Currently, the index is hovering around 77.80 areas after recording the low of 77.55 and the high of 78.13. The index is aiming to extend the upside recovery which started last week, where over weekly basis we can see the recovery signals and reversal on momentum indicators from oversold areas.
The index is now moving around the 76.4% correction for the last upside rally from the trough at 74.26 to the high at 88.70 around 77.60 and stability above this level will support the continuation of the upside rally which we see might be aiming at the 23.6% of the last downside wave from the aforesaid peak to the recorded low on October 15 at 76.14.
Technically, the decline is overdue and the correction is needed; while fundamentally we also see the jittery sentiment prevailing again where the market is once again mixed regarding the prospects for the recovery and extent of support to be provided by the Feds QE2!
Some see the dollar’s rally as preemptive to the quantitative easing to be announced according to expectations next week as the Feds meet, where they see that the recovery is ongoing and further monetary support will revitalize the economy. While to the pessimistic side, others see the dollar’s appreciation on haven demand as the QE will prove to be insufficient to support the recovery.
To us, reality speaks other words! It is merely correctional, the QE was extensively discounted into the market in the recent period and the dollar’s slump is overdone and only for now some correction is only logical on the expectations for the QE. We see the potential for the new measures to be smaller than market expectations and for the volatility to continue, and see that the state of the US economy is not in complete recessionary state rather than losing momentum and those matters combined are supporting the dollar’s recovery. The pullback from the correction will be soon and the reversal in the trend is not expected NOW as still we see the outlook intact for greenback!
The euro is a main reason supporting the dollar index to rise, where it compromises the most percentage of representation. The euro area lacks major data today and that sustained the negativity on the euro, especially with fears surfacing once again over the state of the so called peripheral nations and their ability to meet their obligations and anchor their deficits.
We can see the EURUSD pair still tending bearishly, though currently around 1.3837 the pair rebounded off early lows at 1.3769. Still with trading steady below 1.3890 the downside movement is likely to continue targeting for now 1.37 areas.
Regarding sterling, the royal currency is still supported by the GDP figures, nonetheless, we can see the volatility today following the rally yesterday. The pair is now mainly flat around opening levels at 1.5839 rebounding off early lows at 1.5756. The pair could not sustain stability below 1.58 areas and the pair should confirm stability below this level to confirm the extension of the bearishness for today.
The market remains jittery ahead of important US data on durable goods orders and housing data which so far are expected positive and supportive of the continued recovery state in the US, and accordingly we see they might be support for the dollar to continue the gains for today.