Dollar holds above support despite weak Dow

The greenback was firmer at the close of North American trade on Monday with the Dow Jones FXCM Dollar Index (Ticker: US Dollar) advancing 0.15% on the session. US equity markets closed out a lackluster session despite an early morning rally, with the Dow, the S&P, and the NASDAQ posting modest gains of 0.34%, 0.03%, and 0.15% respectively. Although there was little in the form of economic data releases, market sentiment remains dampened ahead of Friday’s Jackson Hole Economic Policy Symposium where central bankers from around the world will convene to discuss pressing matters facing the world’s developed economies. Investors will be lending a keen ear to remarks made by keynote speakers Fed Chairman Ben Bernanke and ECB President Jean-Claude Trichet for further insight as to the possibility for further quantitative easing measures. And while it’s highly unlikely Bernanke will announce plans to implement QE3, traders remain poised to see if the central bank finds scope to introduce measures to help support the slumping economy. And with inflation concerns coming back into focus, the chairmen’s words will be heavily weighted as the nation now risks a period of stagflation.

As cited in Thursday’s USD Trading Today report, the greenback is likely to remain well supported here with the index continuing to straddle the 9455 level which has continued to be an area of congestion for the dollar. With markets lacking conviction on any interim rallies, haven flows should benefit the reserve currency in light of threats from Japanese and Swiss officials who have vowed to take action to stem the rise of their respective currencies.

The index closed above interim support at the 50% Fibonacci extension taken from the taken from the July 12th and August 8th crests at 9460 after a brief dip below early late in the session on Monday. Topside targets remain unchanged at the 38.2% extension at 9513 with subsequent ceilings eyed at 9550 and the 23.6% extension at 9580. A break below interim support sees downside targets at the 61.8% extension at 9410 followed by 9370 and the 76.4% extension at 9345.

The dollar climbed against two of four component currencies, highlighted by a 0.33% advance against the Japanese yen. As risk appetite crept back into the market investors went back on the hunt for yields, lifting the aussie which was the top performer against a modestly stronger US dollar. Also weighing on the yen were remarks made by Finance Minister Yoshihiko Noda who cited that officials were ready to take ‘decisive action’ to curb the yen’s rapid appreciation. However with broader market sentiment lacking conviction, its likely investors will once again seek haven in the yen should equities take another dive.

The domestic economic docket is relatively light again Tuesday with July new home sales and the August Richmond Fed manufacturing index on tap. Investors will continue to closely eye housing data for clues that the ailed market may have bottomed. Consensus estimates call for new home sales to expand by 1.0% m/m, up from a previous contraction of 1.0% a month earlier. The manufacturing sector continues to brace for further disappointment with Richmond manufacturing expected to fall to -5 from a read of -1 in July.

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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