Dollar Strength On The Agenda

Posted by Rob

June 4, 2008

US dollar Yesterday early gains for the euro were negated when the dollar made a sharp recovery following comments by the Federal Reserve chariman, that reiterratted the Treasury Secretary Henry Paulson’s comments on the third of June following comments yesterday from Federal Reserve chairman Ben Bernanke, the dollar pulled back euro gains from earlier in the day. Today the EURUSD has remained in a tight channel of support and resistance.

Both Ben Bernanke and Treasury Secretary Henry Paulson made comments regarding the Federal Reserve’s commitment to guard against rising inflation and focus efforts on strengthening the dollar. The USD has lost 10 percent in the last year.

Stephen Jen of Morgan Stanley said, “The Fed cannot ease further if the dollar is now a concern. This shift in rhetoric is one more reason to believe that the dollar has bottomed.” - Bloomberg

Despite recent declines for the dollar, Europe has felt concern over the unprecedented growth of the euro against the dollar. The euro reached a record all-time high of $1.6019 on April 22. After Bernanke’s comments yesterday the dollar strengthened to $1.5445 to one euro.

Technical Chart: EURUSD 1-hour

EURUSD 1-hour (04-06-08)

The 1-hour chart for EURUSD clearly shows the tight channel in which the euro/dollar now sits. There is a tightening of the Bollinger bands signalling a lower volume of trades as the market waits for a direction.

Earlier today we saw the pair break through the 23.6% Fibonacci line, but since then the price continues to favour the dollar. The price action is presently sitting well below the 55-day sma.

This is an interesting time for the EURUSD, with big statements from the Fed, many experts are predicting that we are seeing a bottom for the dollar, and could see some recovery. To enter a trade, we would look for a break through the Bollinger bands, however, with present fundamentals looking decidedly uncertain, this is a good time to wait and see which direction the pairing is going to take over the coming days.

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