US dollar index
The U.S. dollar is higher again after a break out above a key resistance level. The greenback began a much-needed rally last week after the U.S. economy showed signs that a stronger recovery is in play.
A strong jobs number on Friday also saw the nation’s unemployment drop below the 10% level to 8.4% and this has seen dollar bears run for cover.
Friday will see inflation data out of the U.S. via the core CPI reading and a number of 1.2% is expected. There is also central bank rate decisions from Europe and Canada, which may influence the dollar index. The Euro is more important with 57% of the index weighting, compared to the 9% of Canada.
Policymakers in Europe have expressed concern about the Euro’s rally to a two-year high which could affect the strength of the recovery in the EU. There are already hints that the economic recovery is slowing, which will see attention turn to further monetary stimulus. The Central Bank’s Head Christine Lagarde will be under pressure to ensure that the economy can advance and it’s possible that some comments are made in an attempt to cool the Euro’s advance. Expectations are for rates to stay the same this week, but traders have priced in a 10 basis-point cut in the deposit rate to minus 0.6% by September next year.
The U.S. dollar index rally has now broen above the price channel I noted last week and dxy now looks like it will the 93.82-94.00 level. The 50 day moving average is just ahead at around 94.20 and this would also be a target. The rise in the dollar could see further losses in commodities and we will have to watch the price action at higher levels to see if the downtrend will continue.
