The greenback was marginally lower at the close of North American trade on Wednesday with the Dow Jones FXCM Dollar Index (Ticker: USDollar) off 0.05% despite moving more than 113% of its daily average true range. The fractional decline comes on the back of a strong performance in U.S. equities that saw the Dow, the S&P, and the NASDAQ close higher by 1.27%, 1.35%, and 1.60% respectively. A conference call between Greek, French, and German leaders temporarily eased investor concerns after Papandreou, Sarkozy, and Merkel reaffirmed their pledge to support the debt laden country despite speculation that Greece may be on the verge of imminent default. Still, sentiment remains fragile with newswires flooded with remarks from central bankers and economists alike keeping traders on their toes amid continued volatility in financial markets.
The dollar closed out a third consecutive session just below the convergence of long-term upper-bound trendline resistance and the key 38.2% Fibonacci extension taken from the June 8th and December 1st 2010 crests at 9745. A close above this level is remains paramount for further topside advances in the dollar. Daily relative strength continues to hover just below overbought levels, with a break above the 70-mark likely to fuel accelerated gains for the index.
The index continues to straddle the 100% Fibonacci extension taken from the August 1st and 18th troughs at 9740 after tagging the psychological 9800 level in North American trade. Again we highlight that a close above 9745 remains crucial for further dollar advances with a breach eyeing topside targets eyed at 9845 and 9900. Interim support rests at 9700 backed by the 76.4% extension at 9650 and the 61.8% extension at 9600.
The greenback fell against two of the four component currencies, highlighted by a 0.56% decline against the euro which continues to hold within an ascending channel formation after reports cited that China remains willing to purchase debt from the fragile periphery nations of the euro region. The aussie saw the steepest declines against the dollar with a loss of 0.28% as investor’s jettisoned risk over concerns that officials will be unable to stem the risk of contagion in Europe. The high yielder remains vulnerable to swings in broader market sentiment despite the apparent gains in equity markets.
Wednesday's jam packed economic docket is highlighted by the August consumer price index, industrial production, and the Philadelphia Fed survey. Consumer prices are expected to remain unchanged at 3.6% y/y, with consensus estimates calling for the month on month figure to print at 0.2%, down from a previous read of 0.5% m/m. Industrial production is expected to come in flat after a previous gain of 0.9% in July with the Philadelphia Fed survey expected to slightly improve with a September print of -15.0 after the dismal -30.7 print seen a month earlier. This economic diary has the capacity to weigh on sentiment in light of the recent three day advance in equities, with the dollar standing to benefit from risk-off flows. Should the data surprise to the upside, we would expect the dollar to hold below its key support as investors go back on the hunt for yields.
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
