Dollar index reaches target; consolidation ahead

The greenback advanced for a third consecutive day in North American trade on Wednesday with the Dow Jones FXCM Dollar Index (Ticker: USDollar) closing higher by 0.33% on the session. A steady stream of comments and weaker than expected prints industrial production data out of the Euro zone have kept heavy pressure on the risk-trade with US markets following European equities lower early in the session. Stocks found some support mid-day with the Dow, the S&P, and the NASDAQ closing off session lows for a loss of 1.10%, 1.13%, and 1.55% respectively. The decline was accompanied by massive drawdowns across the commodity sector with gold tumbling 3.5% and crude oil off by more than 5.2% as global growth concerns continue to take root.

As noted in my previous USD Trading report, the dollar was able to maintain course for a test of the 76.4% Fibonacci extension taken from the August 1st and October 27th troughs at 10,070. Strong resistance holds here with a topside break exposing targets at the October highs at 10,140. Daily support rests at the 61.8% extension at 9950. With three days of substantial gains for the dollar, look for a short-term correction in the index at some point over the next 24-hours with the relative strength index likely to rebound off RSI resistance. A break above coupled with a breach of the 76.4% extension eyes topside targets.

An hourly chart shows the index breaching the 10,035 resistance level we closed at yesterday before triggering our targets at the 76.4% Fibonacci extension at 10,070. Interim support holds at 10,035 with a break below eying subsequent floors at 10,000 and former trendline resistance, now acting as support. Again we note the probability of a pullback of some magnitude continues to rise with our medium term outlook remaining weighted to the topside.

The greenback advanced against all four component currencies highlighted by a 1.09% advance against the Australian dollar. Classic haven flows dominated early trade with the aussie succumbing to heavy selling pressure as traders jettisoned higher yielding assets in favor of the perceived safety of the greenback. The euro also came under attack after a bond auction in Italy saw record yields with the single currency closing lower by 0.41% on the session. The sterling was able to pare a large portion of the day’s losses with the pound off by just 0.06% at the close. As noted in the Winners/Losers report earlier today, the yen continues to hold its recent range as haven flows saw dollar gains outpace those of the yen which also closed higher against all its major counterparts save the greenback.

Thursday's economic docket see’s a flurry of data highlighted by November producer prices, industrial production, and the December Philadelphia Fed survey. Consensus estimates call for producer prices to hold at 5.9% y/y, with the month on month figure expected to print at 0.2% from a previous decline of 0.3% m/m. The pace of industrial production is expected to have softened from last month with calls for a read of 0.2%, down from 0.7% with the Philly Fed seen improving to 5.0 from a previous print of 3.6. As concerns about global growth once again come into focus, more and more emphasis will be placed on US economic data moving forward after the Fed cited no intentions of implementing further quantitative easing at yesterday’s rate decision. Look for the dollar to ease after hitting technical resistance with a significant downturn in broader market sentiment likely to fuel the momentum needed for a topside break of the 10,070 level.

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

12/15

13:30

LOW

Producer Price Index (MoM) (NOV)

0.2%

-0.3%

12/15

13:30

MEDIUM

Producer Price Index (YoY) (NOV)

5.9%

5.9%

12/15

13:30

LOW

Producer Price Index ex Food & Energy (MoM) (NOV)

0.2%

0.0%

12/15

13:30

MEDIUM

Producer Price Index ex Food & Energy (YoY) (NOV)

2.8%

2.8%

12/15

13:30

LOW

Current Account Balance (3Q)

-$107.2B

-$118.0B

12/15

13:30

LOW

Empire Manufacturing (DEC)

3

0.61

12/15

13:30

LOW

Initial Jobless Claims (DEC 10)

390K

-

12/15

13:30

LOW

Continuing Claims (DEC 3)

3640K

-

12/15

14:00

MEDIUM

Net Long-term TIC Flows (OCT)

-

$68.6B

12/15

14:00

LOW

Total Net TIC Flows (OCT)

-

$57.4B

12/15

14:15

MEDIUM

Industrial Production (NOV)

0.2%

0.7%

12/15

14:15

LOW

Capacity Utilization (NOV)

77.9%

77.8%

12/15

15:00

MEDIUM

Philadelphia Fed. (DEC)

5.0

3.6

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.DailyFX.com

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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