The dollar index this week has seen a break from key support levels that could send the greenback weakening further against major crosses. Today's session has been marked with depreciation against all major pairs, while equities and commodities respond with higher nominal prices. US markets advanced by approximately one percent, while commodities activity shows oil up 1.4% while gold returns back above $1000 per ounce.
Dollar Performance Across Majors (One-Day)
The Dow Jones Industrial average is now in the midst of possible gains for the fourth consecutive day. While it is indeed possible that the correction to 9,250 may be a short-term bottom, the notion that much of the move is a result of currency and commodity movements cannot be ignored. Charts of the index in euro or sterling show a grimmer picture, with equities barely higher. Should the dollar rebound off recent weakness, stocks may take a hit towards re-testing last week's low.
Dow Jones Industrial Average (Euro Price Chart)
Dollar index has been in a bearish trend since peaking in early March. The financial crisis was largely what caused investors to flock to the safety of dollar and yen holdings while resurgence in risk appetite largely foreshadowed the move lower in recent months. Having now crosses below a key fibonacci retracement, the index may find support at approximately 75.9, just over a one percent further slide from current levels. Should this support be breached, the next level at 75.165 may be tested. Ultimately, it is unlikely for the dollar to weaken to the lows seen in the summer months of 2008. Macroeconomic forces have started to move favorably for the currency, including the trade deficit at less than half last year's gap, while the US economy may actually see quicker growth than the Euro-Zone and other advanced economies in the second half. Also, narrower revisions to the expected budget deficit may quell concern on the fiscal side while the eventual scaling back of monetary programs should bode well for dollar strength.
