The general theme in our recent posts has been about a possible correction or a retracement of some sort in US dollar. The greenback has indeed stopped going up but it hasn’t exactly sold off. Well, at least not yet anyway.
Market participants are probably waiting to hear from the ECB tomorrow before exerting their force on the euro/U.S. dollar (EUR/USD) currency pair, the most important currency pair as for as the Dollar Index is concerned. Others are probably waiting to find out how the world’s largest economy performed in the second quarter. U.S. GDP will be published on Friday and is probably the most important piece of data this week.
Ahead of these important events, even the most bullish of dollar speculators have taken their foot off the gas. Profit taking in major pairs such as the GBP/USD, which had been hit the hardest of late, and USD/JPY following its sharp gains recently, has weighed on the dollar. Meanwhile strong Canadian data and a rebound in oil prices has helped the North American nation’s currency gain ground in favour of its southern neighbour. Even the prices of noninterest-bearing gold and silver have rebounded modestly with bargain hunters dipping their toes in as the metals sold off and dropped to key technical support levels recently.
Dollar Index tests trend line
As a result of the modest pullback in the dollar, the Dollar Index has moved lower to test the rising trend line around 94.30-94.50 area, where it had bounced slightly when this report was written. However, if the index goes below this area then we may see further technical selling pressure, potentially resulting in a deeper correction. In this potential scenario, the DXY could then drop below the next recent low at 93.71 and probe the liquidity that would be resting below it. And if there’s acceptance below that level then we may see an eventual drop to the 92.65 support level next.
Meanwhile, in the event the DXY breaks above the 95.50 resistance then this would probably clear the way towards the next level of resistance at 97.15, which was formerly support.