Currencies | Apr 28 2011
Fed Shows the Dollar No Mercy – Index Drops To Key Fibonacci Level
By Michael Boutros, Currency Analyst for DailyFX.com
The Federal Reserve held interest rates at 0.25% as expected today. Bernanke’s remarks at the first ever central bank press conference provided no relief for the battered dollar which continued to fall in the final hours of North American trade. With the Fed’s commitment to the completion of QE2 and no change to the “extended period” language as it pertains to interest rates, the dollar’s woes continued to mount.
After breaking below the 73.80 support level yesterday in after-hours trading, today the dollar index hit a new three year low at the long-term 100% Fibonacci extension taken from the 2009 and 2010 crests at 73.32. Further losses for the greenback are expected after today’s historic events noting floors at the 73-handle and 72.30, with longer-term targets seen at the 2008 lows just below the 70-figure. Topside resistance is eyed at 73.80 backed by the upper bound trend line, currently at 74.20, and 74.70. It’s worth noting that RSI is seen dipping into oversold territory, suggesting that the greenback may see a short-term correction as dollar shorts book their profits.
A look at the majors testifies to the dollars demise today, with the euro and the pound surging 1.62% and 1.54% against the greenback. Diverging interest rate expectations will continue to benefit the European block with commodity currencies and higher yielding assets seeing a jump on dollar weakness. The Aussie’s surge overnight on stronger than expected CPI data, also added to the dollar assault with the currency advancing more than 1.4% on the day. Looking ahead, the longer-term outlook for the greenback remains bearish as the Fed shows no signs of tightening its ultra-loose monetary policy.
The views expressed are not FNArena's (see our disclaimer).
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