Risk Aversion Sends Dollar Lower

Posted by Rob

June 27, 2008

The US dollar has felt the squeeze as global stock markets falter and oil continues to rise.

Fears over the US banking sector is blamed for the sell-off of equities, leading to a weakening dollar against the Yen and Euro.

The dollar has also been hit as commodities continue to rise, with oil hitting record highs and gold continuing to rise. Gold tends to move inversely proportional to the dollar.

According to Maurice Pomery, “The dollar looks like it is teetering on a major slide again.” - FT.com

The dollar fell against major currencies including the euro, yen, Australian dollar, the Swiss franc and the Canadian dollar. The dollar fell 0/2% against the euro to $1.5772.

The British pound also felt the squeeze, with some analysts pointing to a recession.

David Tinsley of National Australia Bank said, “the iceberg ahead is most likely the labour market. Should this deteriorate more sharply than expected, then the UK will do well to avoid recession.” - FT.com

Technical Chart: EURUSD 1-hour

EURUSD 1-hour (27-06-08)

From the 1-hour techncial chart for EURUSD, we can see that the pair are moving in favour of the Euro. Both the 55-day and the 20-day SMA lines are in a positive trend.

The Fibonacci retracement lines also give us an indiciation of market entry points. With the euro trending upwards we would look for buy signals. This is matched by fundamentals - further dollar decline likely with rising commoditiy prices and expected ECB interest rate announcements in July.

From the 1-hour chat the stochastic is undecided, moving well within the upper and lower channels. For confirmation, we could extend to the 30-min and 4-hour chart to see if there are any confirmations to indicate a euro buy signal.

A retracement toward the 23.6% or 38.2% would give us a good indication of entry if the price action stalls at either of these points - and the stochastic agrees. Look for euro growth in the coming days.

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