FX Technical Strategy
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Cautious dollar strength
Wed, Aug 20 2008, 08:54 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
In last week's release, we discussed the potential for extended short strength for the US dollar, although the context for this remains against a long term bear market. Given the speed of the market's move, the potential for an overshoot is large and picking exact levels for a turnaround becomes more problematic. However, the targets for euro dollar were at 1.4722 and whilst the squeeze continues, it is difficult to stand in the way of dollar strength and an extended move into 1.4500 support can not be ruled out from here.
The signs that argue for caution are not necessarily the extent of the dollar's appreciation, but the underlying potential for another downleg in equities and the softening of US bond yields.
As with everything in the financial markets, timing is key. Gold remains an important canary for the dollar's fortune. Whilst an initial bout of short covering and buying has fizzled out, the $750 support level should attract some longer term players into rejoining the trend. Given that the signals have moved from a clear dollar buy to mixed, the currency pair that led the way upwards (dollar yen) should be monitored as the first to lead the dollar back down. At the very least it should stay defensive, allowing further downside for euro yen.
Published on Wed, Aug 20 2008, 09:03 GMT
Archive
- Green shoots' roots in commodities
Published On Wed, May 13 2009, 07:17 GMT - Top and tail outlook for majors
Published On Wed, Apr 29 2009, 06:13 GMT - Base case for sterling
Published On Thu, Apr 23 2009, 06:07 GMT - Risk appetite is reduced
Published On Wed, Apr 8 2009, 06:39 GMT - Dollar weakness is a long term story
Published On Wed, Mar 25 2009, 12:30 GMT
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