US Dollar Remains in a Funk – August 11, 2010

US dollar index, US dollar, USD, $, FOMC, Fed, interest rate, fx, forex, forex market, forex trading, trading forex, currency trading, online trading, daily forex picks, daily fx picks, forex forecast, forex analysis

Good day forex peep! In today’s fx special is the US dollar index. As you can see from its 4-hour chart, the index, which weighs the valuation of the greenback against a basket of currencies like the euro, pound, yen, Canadian dollar, Swedish krona, and Swiss franc, has been on a downward slope for quite some time now. Just recently, though, the index has temporarily rebounded after it hit a low just above 80.000. At present, it is trading just above 81.000. But since the channel is still very much intact, the index as well as the dollar itself will most likely head lower. However, if the USD buying makes a comeback and the index breaks the downtrend resistance and the 82.000 marker, it can reach 83.000.

Yesterday’s dollar trading was quite volatile because of the Fed’s monetary policy decision. The USDX rose by almost 1% ahead of the decision but it was suddenly sold off to finish with only a modest 0.2% gain. The reason? Well, the Fed, aside, from keeping its interest rate constant at 0.25%, surprised the market with its plans to reinvest again the principal payments it receives from agency debt and agency mortgage-backed securities in US treasuries. This action spurred some speculation that the Fed could be lining up for another set of quantitative easing to support consumption in the US. Quantitative easing, of course, would dilute the greenback, hence, weakening its valuation.

If the FOMC indeed decides to do another set of QE, then the USD would most likely dip in the short to medium run until the market rebounds which consequently will increase the demand and the valuation of the US dollar in the longer run.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>