The US Dollar index has reached multi-month highs. It is now hovering around the December 22nd peak after the December rally. This is a key technical point as the index approaches the 200 daily moving average.
The 78.80-79.30 zone is likely filled with both large amounts of stop-loss orders and sell orders (from those believing that the index will not be able to break the technical resistance). The bull-bear fight at this point is likely to set the tone for the US dollar in the next few trading days. If the pair breaks the resistance, we’re likely to see pop as a short squeeze takes place due to the dollar carry-trade. Panic from the carry-traders closing their positions at this key level would likely add power on the upside.
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Market Club triangle indicators are also boding well for the US dollar as a new upside Monthly Triangle has appeared. This puts the monthly, weekly, and daily triangles all pointing to the upside. Generally, this indicator combination suggests that the index is likely to trend higher in the very near-term.
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The fundamental drivers behind the dollar appreciation has been the Greece debt problems and the Chinese tightening due to inflation fears. The Chinese producer price index beat expectations on the upside tonight and confirmed these fears. Corporate U.S. earnings have also sent mixed signals as some significant American companies have missed top-line revenue expectations.
Unless the Greece situation gets fixed (somehow), the negative sentiment on the Euro is likely to support the dollar.
Good earnings reports from Ebay and Starbucks released after the Wednesday market close may support the market on Thursday. The U.S. jobless claims, which will be released at 8:30 AM Eastern Time, is also likely to give direction to the market.
Forward Daily Risks:
As we look forward to the European and U.S. session, we need to keep the following in mind:
* Fundamentally, the release of the U.S. jobs data, the Federal Reserve Balance Sheet, and the Leading Indicators is likely to shake things around.
* On the technical side for the U.S. dollar, the test of the 200 daily (simple) moving average is the most important factor.
* Further problems or solutions regarding Greece is probably the biggest near-term tail risk (Ireland, Spain, and Portugal are also a problem). Positive news regarding the situation would likely send the EUR/USD flying; as a result, keeping a safety stop-loss on the pair is recommended.
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