Dollar Confidence Falling
After we saw a new peak yesterday for the euro against the dollar, wit ha break through $1.6000, the dollar has remained little changed on better than expected second-quarter figures from Wells Fargo.
Shaun Osborne of TD Securities in Toronto said, “the Wells Fargo news took some pressure off of the systemic risk facing the financial markets.” - Bloomberg
A survey carried out by Bloomberg showed that it is expected that the dollar will decline against the euro, the yen, the Brazilian Real as well as the Swiss franc over the next six months.
Confidence in the US Treasury is at an all time low as US investors turn bearish against the dollar. Interestingly however, UBS maintain a forecast of the dollar climbing against the euro, with expectation of a fall to $1.53 by quarter-three and $1.40 by the end of 2008.
Technical Chart: EURUSD 1-hour
From the 1-hour EURUSD chart we can see that after the all-time high reached by the euro yesterday, we have seen a retreat back into more common territory.
Now we can look at the orange line which was previous support, as giving us an area of resistance on the climb up towards euro growth. With today’s fundamentals signalling better than forecast profits for Wells Fargo, we haven’t seen the market moving in favour of the dollar, therefore euro gains may be likely.
We can also see that the Fibonacci line established between recent lows and yesterdays all-time high gives us an indication that price action is moving around the 38.2% retracement line. The Bollinger band has also tightened, signalling less volatility in the market. Generally in such a situation we will see a break-out either above or below the Bollinger band.
If price action continues to sit above the 38.2% line we may see the EURUSD rise in favour of the euro towards the 23.6% retracement line. Therefore, buy signals look like the best option, however, a valid entry is necessary.
We saw some negative divergence in the RSI over the last few days, and sure enough the currency pair has pulled back from the highs. Now it appears that the RSI is moving in-line with the price action.
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[...] we previously reported, a Bloomberg survey showed that economists expect the dollar to weaken further against the majors [...]