The greenback was softer at the close of North American trade on Thursday with the Dow Jones FXCM Dollar Index (Ticker: USDollar) off by just 0.14% on the session. The decline comes on the heels of a massive dollar rally on Wednesday as traders jettisoned risk assets in favor of the dollar on European debt concerns. Equity markets were lackluster throughout the session with the Dow, the S&P, and the NASDAQ climbing 0.96%, 0.86%, and 0.13% respectively. A moderately positive Italian bond auction and stronger than expected economic data out of the US saw a mild rebound in risk appetite Italian yields coming off record euro-era highs hit yesterday.
The dollar eased off one-month highs with the index continuing to hold below the 9833 resistance level. We remain bullish on the greenback so long as price action remains above the 38.2% Fibonacci extension taken from the 2010 and November 2010 crests at 9745. Downside moves for the index look to be limited with the dollar holding above the 20, 50, and 100-day moving averages. Expect the dollar to remain supported as conditions in Europe deteriorate and domestic economic data continues to top estimates.
An hourly chart from Thursday shows the index continuing to hold within the confines of an ascending channel dating back to October 31st with the greenback easing off the convergence of channel resistance and the 50% Fibonacci extension taken from the August 1st and October 27th troughs at 9850. Interim resistance holds here with a topside break eyeing subsequent ceilings at 9900 and the 61.8% extension at 9946. Support rests at the 38.2% extension at 9754 backed by 9690 and the 23.6% extension at 9636.
The greenback fell against all four component currencies highlighted by a 0.44% decline against the euro. A fairly positive bond auction in Italy and the appointment of former ECB vice-president Lucas Papademos to act as the interim leader for Greece’s newly formed crisis coalition saw debt concerns tempered today with the euro climbing against most of its major counterparts in US trade. However the gains are likely to be limited as investors await developments out of the periphery nations with traders poised to react to headlines filtering out of Europe. The aussie was the weakest performer of the lot with an advance of just 0.04%. The aussie’s failure to follow risk correlations and move higher on the session suggests that markets continue to lack conviction on interim rallies with expectations for another bout of risk aversion continuing to take root.
Friday's economic docket comprises of only one data point with the University of Michigan confidence survey on tap. Consensus estimates call for a print of 61.0, up from a previous read of 60.9. The report wraps up a light week for US data with investors looking to key housing starts, retail sales, PPI, empire manufacturing, and Philly Fed data next week. In the interim the dollar price action will be contingent on by broader market sentiment with European debt concerns continuing to dominate global headlines.
Michael Boutros, Currency Analyst for DailyFX.com is a Technical/Fundamental Analyst specializing in the FX markets. E-mail: firstname.lastname@example.org.