Two events have occurred over the last 24 hours that could trigger another leg higher for the dollar:
1, The BOE has back-tracked from an early rate increase and now it may not be the first of the major central banks to hike interest rates. This has weighed heavily on the pound.
2, German yields have fallen to record lows as the market prices in the prospect of QE from the ECB after German GDP contracted in the second quarter. The 10 year yield fell below 1% for the first time on record, and 2-year yields remain in negative territory. This could weigh on the euro in the long-term.
This has pushed the German – US yield spread deeper into negative territory, and this morning the UK –US yield spread fell into negative territory (see more about GBPUSD here), which are both bullish developments for the greenback.
This is significant for the dollar since the performance of EURUSD and GBPUSD have a major bearing on the greenback. The dollar index is approaching some key resistance levels including:
The top of the most recent range at 81.70 from 6th August
The top of the weekly Ichimoku cloud at 81.87. (See figure 1)
A break above the 81.70 – 81.90 resistance zone would be a medium-term bullish development that could trigger further gains.
CFD’s, Options and Forex are leveraged products which can result in losses that exceed your initial deposit. These products may not be suitable for all investors and you should seek independent advice if necessary.
Recommended Content
Editors’ Picks
EUR/USD rises toward 1.0800 on USD weakness
EUR/USD trades in positive territory above 1.0750 in the second half of the day on Monday. The US Dollar struggles to find demand as investors reassess the Fed's rate outlook following Friday's disappointing labor market data.
GBP/USD closes in on 1.2600 as risk mood improves
Following Friday's volatile action, GBP/USD pushes higher toward 1.2600 on Monday. Soft April jobs report from the US and the improvement seen in risk mood make it difficult for the US Dollar to gather strength.
Gold holds on to modest gains around $2,320
Gold trades decisively higher on the day above $2,320 in the American session. Retreating US Treasury bond yields after weaker-than-expected US employment data and escalating geopolitical tensions help XAU/USD stretch higher.
Addressing the crypto investor dilemma: To invest or not? Premium
Bitcoin price trades around $63,000 with no directional bias. The consolidation has pushed crypto investors into a state of uncertainty. Investors can expect a bullish directional bias above $70,000 and a bearish one below $50,000.
Three fundamentals for the week: Two central bank decisions and one sensitive US Premium
The Reserve Bank of Australia is set to strike a more hawkish tone, reversing its dovish shift. Policymakers at the Bank of England may open the door to a rate cut in June.