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Trade Desk Thoughts:
Dollar Index Outlook
Another week passed, and another low was reached for the dollar index (76.60). The dollar index has edged lower for the six consecutive day, the longest run since March 2009. The dollar’s decline came as U.S. consumer sentiment improved, and after macroeconomic reports from China showed that, the economy is heading strongly towards recovery, something that should be reflected in the global economy outlooks.
The dollar’s outlook lies to the downside, as long as U.S. officials fail to keep under control the huge budget deficit, which is now standing at $1.3 trillion. The U.S. deficit was a major drag for the value of the dollar during the pre-credit crisis period, when the euro was heading towards the $1.60 area, but the problems that appeared in the global economy changed the market’s focus from the U.S. deficit to the market’s risk-aversion phases. Now, that the global economy is stabilizing, investors are again starting to focus on the deficit issue. However, if global markets do not hold current economic valuations, the Usd will easily take back the recently stolen ground.
"The weighted index of the other currencies against the dollar give a fair reflection of the overall market sentiment towards the greenback, said TheLFB Trade Team."Most professional traders look towards the Treasury yield and dollar index activity to gauge their dollar trade potential. The index is made up of euro, yen, pound, Cad, Swedish kroner, aussie, and the swissy. It was developed in March 1973, after the gold standard was scrapped, and its value is a reflection of the value of the Usd now, compared to what it was worth then. A read of 75.00 on the index equates to the Usd value being 75% of what it was three decades ago."