DJ FXCM Dollar Index
The Dow Jones-FXCM U.S. Dollar index slipped to a fresh monthly low of 9439.45 on Friday and the greenback may threaten the rebound from May (9337.19) as market participants diversify away from the reserve currency. The USD is flat on the day after moving only 50% of its average true range, and the dollar may continue to lose ground in the following week as the U.S. government struggles to address the debt crisis. As policy makers fail to meet on common ground, fears surrounding the debt ceiling will continue to sap demands for the reserve currency, and the U.S. dollar may trade heavy over the near-term as the economic outlook remains clouded with uncertainties. As price action holds within the narrow Bollinger Bands, the index may hold steady going into the end of the week, but the slew of major event risk scheduled for the days ahead should produce increased volatility in the greenback as investors weigh the outlook for future growth.
Indeed, the U.S. dollar index broke below near-term support (9450.00), but the greenback should trend sideways going forward as long as price action holds above the 78.6% Fibonacci retracement around 9430.00. As the economic docket remains fairly light for money, risk trends is likely to dictate price action heading into the following week, and the 2Q GDP report is likely to take center stage as the growth report is anticipated to reflect a slowing recovery. We’re expecting to see the world’s largest economy expand at annualized pace of 1.8% after growing 1.9% during the first-three months of 2011, and the downtick in the growth rate could further instill a bearish outlook for the U.S. dollar as future growth prospects deteriorate. However, the data could spark a shift in market sentiment, leading currency traders to scale back their appetite for risk, and we are likely to see a lot of noise immediately following the release as market participants absorb the implications of the report.
Three of the four components weakened against the greenback, led by a 0.44% decline in the euro, and the single-currency could face additional headwinds over the near-term as the new bailout package for Greece comes under scrutiny. As many unanswered questions remain on how the EU plans to implement extraordinary measures, the relief rally in the EUR/USD appears to be giving out, and the single-currency may consolidate in the week ahead as it fails to push back above the 78.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.4440-60. In turn, we should see the bearish triangle in the euro-dollar continue to play out over the near-term, and the exchange rate may fall back towards 1.4000 as it maintains the downward trend from May.
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