Short term
Trade view / 20 July 2016 at 11:27 GMT

Dollar Index is a very short-term sell

Managing Partner / Spotlight Group
United Kingdom

The Dollar hit a four-month high against a basket of major currencies supported by strong US data and rising expectations that the Federal Reserve may raise rates before the end of the year.

Data from the Commerce Department reported that US housing starts accelerated by 4.8% to a seasonally adjusted annual pace of 1.19 million units. This has been interpreted as a sign of enduring strength within the US economy.

Fed Funds Futures indicate that investors see about a 40% chance that the Fed will raise rates by its December meeting, according to CME Group's FedWatch programme. It was as low as 20% just three weeks ago.

The Dollar Index (DXY), which tracks the US unit against a basket of six major rivals, hit a high of 97.271, its highest level since March 10. By 11:22 BST it had backed off to 97.16. The time-based technicals are split, as the measures out to one hour say the DXY will sell off, although the longer indicators call the index a buy.

Dollar Index
 Source: Spotlight Ideas

Next week, the Fed will issue its latest interest rate decision upon the completion of its two-day July meeting on July 27. Since the Federal Open Market Committee (FOMC) left short-term rates unchanged in June, a number of policymakers have shown a division as to the timing of the next rate hike. Any hikes in Fed Funds this year are viewed as bullish for the dollar, as foreign investors pile into the currency in order to capitalise on higher yields.

10 Year Government Yields: Germany: -0.034%, France: 0.203%, UK: 0.805%, USA: 1.565%.

 Source: Spotlight Ideas 

Parameters (Dollar Index September 2016 DXU6):

Entry: sell 97.16 11:22 BST.

Targets: 97.00... 96.90... 96.76... 96.62.

Stop: 97.50.

Time horizon: short-term.

— Edited by D. Deacon

Non-independent investment research disclaimer applies. Read more


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