The greenback surged Wednesday in North American trade with the Dow Jones FXCM Dollar Index (Ticker: USDollar) advancing a full 1.0% on the session after breaking above the 100 day moving average at 9597. Equity markets continued to sell-off sharply with the Dow, the S&P, and the NASDAQ plummeting 4.62%, 4.42% and 4.09% respectively, fueling massive flows into the dollar as traders sought safety amid concerns over a possible double dip recession scenario. Although Tuesday's FOMC announcement saw markets rally on the prospect of a prolonged zero rate policy, continued concerns over the health of the global recovery have taken root and traders are likely to remain on the defensive until economic data proves otherwise. The single greatest risk for the greenback continues to be significant shifts in market sentiment. And with the Fed’s vow to keep rates at historic lows through mid 2013, the dollar will provide little solace for traders seeking yields. However in the interim, the greenback is likely to remain well supported so long as economic and political uncertainties persist.
The index broke back above the 61.8% Fibonacci retracement taken from the July 12th decline at 9590 before encountering resistance at former trendline support, now resistance, around 9625. Interim resistance holds with this trendline with a break eyeing topside targets at the 76.4% retracement at 9650 and 9700. Support rests at 9590 backed by the 50% retracement at 9540 and 9500.
The dollar advanced against all the component currencies save the yen which gained 0.13% against the greenback. As mentioned in Tuesday's USD Trading Today report, the yen remains well supported on haven flows as speculation of a possible Swiss National Bank intervention saw traders reluctant to commit new trades in favor of the swissie. The performance chart is highlighted by a 1.36% decline in the Aussie which continued to come under pressure as investors shunned yields in favor of safety. The euro followed suite with a loss of 1.31% as concerns regarding the sovereign debt situation in the region continue to weigh on the single currency.
Thursday's economic docket is highlighted by the June trade balance figures at 12:30 GMT. Consensus estimates call for the deficit to narrow to -$47.7B from a previous read of -$50.2B. Despite the data, it’s worth reiterating that future price action for the greenback continues to hinge on market sentiment as equity swings intensify and investors seek refuge.
Michael Boutros, Currency Analyst for DailyFX.com is a Technical/Fundamental Analyst specializing in the FX markets. E-mail: mboutros@fxcm.com.
Twitter: @MBForex
WEB: www.fxcm.com
