US Confidence Data Sends Dollar Lower
The dollar fell against the euro and the yen after poor US consumer confidence data caused concern that the US economy may not rebound.
The USD traded at $1.5576 from a low of $1.5601 on May 16. The dollar also weakened against the yen from 104.04 to 104.03.
Despite a temporary rebound from record lows of $1.6019 on April 22, gains made by the dollar have been pared against the euro as data favours a strengthening euro.
Daragh Maher at Caylon, London (investment-banking unit of Credit Agricole) said, “The dollar will remain on the defensive after soft U.S. data. We are more reluctant than the market to claim we have seen the bottom for Fed funds.” - Bloomberg
Futures traders on the Chicago Board of Trade favour Federal Reserve interest-rates staying at 2 percent by 88 percent. Traders see a 24 percent chance of a rise to 2.25 percent in September. According to Tobias Davis of Custom House Global Foreign Exchange in Sydney, “I’d still be looking for any potential long positions in the dollar.”
Euro Success
According to the Financial Times, “given the combination of the rapid decline of the dollar and the eurozone overtaking the US as the world’s largest economic area, we may be set for another seismic currency shift. It is one in which the euro takes over the baton from the dollar.” - FT.com
Looking back at the shift between the British pound and the subsequently the US dollar taking over as the International currency, parallels can be drawn with the huge growth in the euro since its launch in 1999.
The euro looks ever-more like the new international key currency with the kind of pressures imposed upon it. The currency faces a variety of issues to becoming the world’s main currency.
Technical Chart: EURUSD
Looking at the 1-hour chart we can see recent support has now become a key resistance level as the euro rises against the dollar. We can see two key support levels. If the price breaks below the first support line, we could see the USD strengthen towards the second declining support line.
Notice the divergence on the stochastic, we see lower highs, yet the price shows higher highs. This suggests a slow-down in buying signalling the potential for a dollar recovery.
Earlier today we can see the price retraced towards the 23.6 percent Fibonacci line, and has since risen along the support line.
A break below support may give some limited dollar growth, but both the 55-day sma and the 20-day sma remain in an up-trend, so we would look for long positions favouring the euro in the short-term. However, in the longer-term we may well be looking for short positions (favouring the dollar).
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