Dollar Index Weekly Chart Points to Further Losses

By Jonathan Granby, 29 August 2011 06:57 GMT We maintain our bearish outlook for the Dow Jones FXCM Dollar Index (ticker: USDollar) into the new week, while we had forecast the possibility of a post-Bernanke pop higher, that never really played out and we now look once again to the downside, both in the short and medium term. With last weeks third consecutive negative weekly close, accompanied by the topside failure above 9,500 we now look for a break of support at 9,400 to open a test of range lows by 9,320. Adding to our outlook is the moves in Eur/Usd in recent days as it breaks out of its bearish pattern exposing range highs and suggesting that a move higher is in the offing. This lines up perfectly with our bearish outlook for the index, as Eur/Usd moves higher the DXY will move lower.

In the medium term, we look for a break of 9,300 and a close below this key level to expose the psychologically important 9,000 region further down. The downside is looking mighty vulnerable with very little support between the range lows at 9,320 and the psychological 9,000 level. For now then we remain very bearish on the buck, only a break and close back above 9,500 will relieve the immediate downside pressure and a test of the falling trend line and/or range highs will be needed for a strategy re-think.

Written by Jonathan Granby, DailyFX Research Team

DailyFX provides forex news on the economic reports and political events that influence the currency market.
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29 August 2011 06:57 GMT

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FOREX: US Dollar Losses After Bernanke Speech May Be Short-Lived

Talking Points

Yen, Franc and US Dollar Fall as Bernanke Speech Boosts Asia Stocks S&P 500 Stock Index Futures Point to “Risk On” Environment Ahead Busy Economic Calendar to Renew Fears of Slowing Global Recovery The Swiss Franc underperformed overnight, with the Japanese Yen and the US Dollar also under pressure as Asian traders took their opportunity to price in Friday’s long-anticipated speech from Federal Reserve Chairman Ben Bernanke at the Jackson Hole, Wyoming central bankers’ symposium. The response mirrored the one witnessed on Wall Street, with shares rising at the expense of the safe-haven currencies, reflecting Bernanke’s optimism in the continuity of the US economic recovery despite the current slowdown as well as his pledge to bring forth additional stimulus if conditions turn particularly sour. The MSCI Asia Pacific regional stock index rose 1.6 percent.

Looking ahead, S&P 500 stock index futures point higher in overnight trade, hinting the trading dynamics noted in Asia are set to carry forward as European traders reflect on the positive aspects of Bernanke’s having closed in negative territory on Friday in the immediate aftermath of his comments and their absence of a promise of QE3. Diminished liquidity may compound the tendency toward reactive trading, with London markets closed for the summer bank holiday and New York coping with the aftermath of Hurricane Irene (although reports suggest transportation systems ought to be operational, so traders should be able to make it to their desks).

With that in mind, it is important to remember that the increasingly apparent global economic slowdown unfolding over recent months and likely to persist through the end of the year has not been dismissed by the Fed Chairman’s optimism. As such, the reprising of growth and corporate earnings expectations ought to resume its downward pressure on spectrum of risky assets. Indeed, a busy calendar of key leading growth indicators looms ahead this week, promising to remind investors of the headwinds still facing sentiment. US Personal Income and Spending as well as the Dallas Fed Manufacturing Activity gauge will the first of these releases and will cross the wires late into European trade afternoon.

Asia Session: What Happened

Hometrack Housing Survey (MoM) (AUG)

Hometrack Housing Survey YoY (AUG)

HIA New Home Sales (MoM) (JUL)

Euro Session: What to Expect

German Consumer Price Index (MoM) (AUG P)

German Consumer Price Index (YoY) (AUG P)

German CPI – EU Harmonized (MoM) (AUG P)

German CPI – EU Harmonized (YoY) (AUG P)

Italian Consumer Confidence Index s.a. (AUG)

Critical Levels

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