How Low Will The Dollar Go?
Today’s Spotlight Market
The US Dollar Index has had a rocky start to 2016, driven lower in recent sessions by lukewarm economic data.? It looks as though defensive traders have been moving out of the greenback in favor of hard assets, such as Gold and Silver.? The congressional? testimony of Fed Chair Janet Yellen offered little to bolster the bull camp.? She dismissed the idea that the FOMC would be prepared to slash rates if the US economy begins to falter.? Yellen made mention of aggressive action from other central banks , which help stimulate the global economy and avoid the need for a Fed rate cut.? While this appears to offer some underpinning for the US Dollar Index, the testimony did not exactly inspire much confidence in the US economy or greenback.
Fundamentals
While Fed Chairwoman Yellen?s testimony did not rule out an interest rate increase in 2016, the central bank is expected to keep interest rates static for the remainder of the year.? As a result, the upside in the greenback could be seen as limited, barring a drastic negative shift in economic conditions overseas.? Currency volatility is also on the rise, which, in theory, should favor the US Dollar.? Implied volatility of the Euro versus US Dollar reached the highest level since June 2012.? Yen versus greenback implied volatility is at the highest level since July 2013.? While this should be favorable to the Dollar, in practice, traders have shunned the currency in favor of precious metals, which have seen a resurgence in recent weeks.? Economic conditions in the US have been less supportive of growth, which could be weighing on the Dollar.? The US economy is continuing to add jobs, but the pace of the job growth could slow if other factors do not improve.
Technical Notes? – View Today’s Chart
Turning to the chart, we see the cash Dollar Index (DXY) breaking support at the 96.40 level.? The next significant support level can be found around the 94.00 mark, with minor support just below 95.00.? The daily chart formed an inverted flag pattern.? The breakout from the pattern suggests the cash Dollar Index could test levels as low as 93.00. The result of the recent sell-off has been oversold technical conditions on the RSI, which could slow DXY?s slide.
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