Dollar plummets to key support levels

The greenback was markedly lower for the 6th consecutive day with the Dow Jones FXCM Dollar Index (Ticker: USDollar) plummeting 0.93% on the session. The losses were suffered despite declines in equities which saw the Dow, the S&P 500, and the NASDAQ off 0.73%, 0.41%, and 0.10% respectively. The debate continues to rage on Capitol Hill as the debt ceiling deadline quickly approaches.

Lawmakers have been unable to reach common ground on a viable solution to the deep structural deficits facing the US and as democrats and republicans scramble to reach consensus, traders have continued to jettison the dollar across the board. Again we take note of haven flows diverting away from dollar denominated holdings as concerns of a US default weigh on risk appetite.

As noted in yesterday’s USD Trading Today report, the dollar remained on the defensive on a lack of clarity from policy makers, with dollar index breaking below interim support at 9460 before finding solace at the April 29th low of 9369. Significant support rests here as the level is represents a 100% long-term Fibonacci extension taken from the March 4th 2009 and June 8th 2010 crests. The RSI and MACD indicators suggest the index may have enough momentum to break below this key level, with such a scenario eying accelerated losses for the dollar.

An hourly chart attests to the dollar’s steep decline today as it broke below the 76.4% Fibonacci retracement taken from the April advance at 9440. The index remains in a descending channel formation dating back to the start the July 12th peak. A break below interim support sees subsequent floors at the 100% retracement at 9337 and 9300. Topside resistance now stands at 9440 backed by the 61.8% retracement at 9500 and 9525.

The greenback fell against all four component currencies, highlighted by a 1.02% decline against the Aussie which moved a full staggering 135% of its daily average true range. The euro took second place with a 0.93% advance against the dollar as the US debt talks take center stage, diverting attention away from the European crisis. The sterling rose by 0.79% after UK GDP came in at estimates, easing concerns about a possible double dip. Yet the merit of which these currencies advanced is a moot point as the story continues to be a dollar sell-off.

Tomorrow’s economic docket is highlighted by the June durable goods orders. Consensus estimates call for a headline figure print of 0.3%, down from the previous read of 1.9%. A stronger than expected read is unlikely to be enough to keep the dollar from falling further as traders seek to liquidate dollar holdings. Despite the data, traders will remain fixated on debt talks coming out of Washington and the dollar may continue to slide until investors are reassured that the world’s largest economy will avert a default.

Michael Boutros, Currency Analyst for DailyFX.com is a Technical/Fundamental Analyst specializing in the FX markets. E-mail: mboutros@fxcm.com.

Twitter: @MBForex
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About the Author
Michael Boutros Michael Boutros, Currency Analyst for DailyFX.com is a Technical/Fundamental Analyst specializing in the FX markets. E-mail: mboutros@fxcm.com.
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