Dollar Giving Back?
Today’s Spotlight Market
The US dollar had a sharp reversal in early trading yesterday, giving back overnight gains and turning slightly negative on the day. Trader sentiment seems to have shifted instead in favor of the Yen, at least in the near-term. The greenback, while generally seen as a defensive currency in times of unrest, benefited from the risk on in the equity markets. Fears of a British exit, or Brexit, from the EU also helped the Dollar Index to start the week.?? ?
Fundamentals ?
The Brexit is a significant event for the currency markets, even though the UK does not share a common currency with the rest of the European Union. A situation where Britain does in fact leave the EU or the EU bends over backwards to keep the country in the Union could have negative repercussions for both the Pound and Euro. If Britain is able to renegotiate and get the other EU states to bend to their demands, it sets a negative precedent where other economically strong and influential countries, like Germany, Italy and France, could decide that they do not like the current terms and pull a similar maneuver. In the US, the US Markit services PMI dropped sharply in February, falling from 53.2 to 49.8, the lowest level since October 2013 and falling back into contraction territory. This certainly puts a damper on those expecting further rate hikes this year, as recession fears are certainly not unwarranted. ECB Governing Council member Jens Weidmann said today that the euro zone is far removed from any deflation and warned against the side effects from prolonged periods of easy money and low rates. This could be taken with a grain of salt, as Mr. Weidmann is known to be a hawkish member of the bank.??? ?
Technical Notes? – View Today’s Chart
Turning to the chart, we see the cash Dollar Index (DXY) bouncing due to technically oversold condition, but the market does not appear to have any near-term momentum. Prices failed after flirting with resistance near the 98.00 level. The DXY moved above the 20-day moving average, which may suggest that a near-term low is in place. It is interesting to note that the momentum indicator has failed to keep pace with prices, which could be seen as negative. Furthermore, the daily chart appears to have formed a gravestone doji, which may hint at a reversal of the upswing.
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