USD Index Rebounds Sharply As Dow Hits Highest Levels Since 2007

By Michael Boutros, Currency Strategist

The greenback is stronger at the close of NorthAmerican trade with the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR ) advancing 0.37% on the session after movingnearly 99% of its daily average true range. The advance comesdespite broad gains in the equity markets with socks making theirhighs early in the session before paring gains to close well offsession highs. Stronger than expected ISM manufacturing data aheadof the open topped estimates with a print of 54.8, versusexpectations for a read of 53.0. The data helped support a rally instocks that saw the Dow test levels not seen since December of2007. The rally faded just an hour ahead of the close however withthe Dow, the S&P, and NASDAQ closing higher by 0.50%, 0.57%,and 0.13% respectively.

The dollar continues to trade within the confines of a descending channel formation dating back to the March highs with the index breaking back above the 50% Fibonacci extension taken from the August 1st and October 27th troughs at 9850 before closing jus higher at 9863. Daily topside resistance stands at 9900 backed by the 61.8% extension at 9945 and channel resistance. Key daily support continues to rest with the 200-day moving average at 9813 backed by the confluence of channel support and the 9800 support level.

An hourly chart shows the index holding within theconfines of a newly adjusted descending channel formation with thegreenback closing just below soft resistance at 9880. Subsequenttopside intra-day targets are eyed at 9900 with a breach abovechannel resistance eyeing the 61.8% extension at 9945. Interimsupport rests at 9850 backed by 9825 and 9800. Note that hourly RSIhas now moved into overbought territory for the first time sinceApril 16th and suggests further gains for the greenback in the daysto come. While today’s advance marks the first day of themonth and bodes well for the greenback, we look to tomorrow whenEuropean markets come back online. We remain neutral in themeantime pending a topside break of this descending channelformation.

The greenback advanced against all fourcomponent currencies highlighted by a 0.92% advance against theAustralian dollar. The aussie remains under pressure after the RBAsurprised markets with a 50 basis point interest rate cut lastnight with further losses expected so long as the 1.0475-level isrespected. For complete AUDUSD targets refer to thistoday’s Winners/Losers report . The euro was the strongest performer of thelot with a loss of just 0.02% on the session. The single currencyhas remained rather resilient in the face of continued headlinerisk out of the region with the EURUSD now threatening channelresistance dating back to the February highs. A breach abovecritical resistance at the 1.33-figure risks further dollar losseswith such a scenario eyeing targets above the 1.34-handle.Volatility on the euro is at its lowest levels since 2008 with theexchange rate holding a tight range as we hold just below channelresistance. Look for a breakout early in the month with the movelikely to offer further clarity on directional bias for the singlecurrency. Note that key employment data out of the US this Fridaycould be the catalyst needed to force the euro out of its recenttight range.

Tomorrow’s US economic docket is highlighted by the April ADP employment report with consensus estimates calling for the addition of 170K private sector jobs. As often is the case, traders will be looking to the ADP print as a barometer for Friday’s more encompassing non-farm payroll report. While the data has usually come more or less in line with the government’s employment data, it’s important to note that the ADP report is notorious for missing larger swings in NFPs as was seen in mid and late 2010. March Factory orders are released later in the day with consensus estimates calling for a contraction of 1.7%, down from a previous positive print of 1.3% a month earlier. We continue to stress monthly opening ranges on the dollar index with Friday’s key employment data likely to set the tone for the coming weeks.

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

5/2

12:15

MEDIUM

ADP Employment Change (APR)

170K

209K

5/2

13:45

LOW

ISM New York Manufacturing

-

67.4

5/2

14:00

MEDIUM

Factory Orders

-1.7%

1.3%

---Written by Michael Boutros, Currency Strategist with DailyFX.com

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DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/us_dollar_index/usd_trading_today/2012/05/01/USD_Index_Rebounds_Sharply_as_Dow_Hits_Highest_Levels_Since_2007.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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