On a very quiet day for fundamental news I thought I would focus on the US in the light of the recent comments by Ben Bernanke regarding the tapering of the QE programme. Bernanke’s lack of clarity has created enormous volatility for the US dollar in the last few weeks, as traders and investors try to second guess if and when tapering will commence.
The consensus view is that any tapering is likely to start in September, but only on the assumption that US employment data continues to remain positive. However, given that in the next few weeks there are no major announcements concerning employment, we should see a period of relative stability for the US dollar.
From a fundamental perspective market players are likely to focus their attention on housing data with today seeing the release of existing home sales and Wednesday data on new home sales.
Moving to the daily chart for the US dollar index the recent volatility is clearly evident with last week’s price action a classic example. The index initially ran into strong resistance at the 11,000 price point resulting in a bearish engulfing candle which was duly validated with a sharp sell off for the US dollar. This was followed by a rally which ran out of steam following the shooting star candle at the 10,900 price area.
The index is now delicately poised with a sustained area of price resistance immediately above in the 10,875 region, and provided this holds then expect to see further US dollar weakness in the short to medium term. Below we have a deep area of potential price support, as shown by the volume at price histogram, which extends from the 10,700 to 10,800. If this level is breached then we may see an even deeper move back towards 10,600 and beyond.
The current resistance level is shown on the daily chart with the yellow dotted line, and was the trigger for the sell off back in late May which saw the index move back to test 10,475 price point. Given the fundamental picture which is likely to impact over the next few weeks, we may simply see a period of sideways of congestion between 10,700 to the downside and 10,875 to the upside as the market waits for the FED to clarify the start (or not) of tapering of the QE programme.
By Anna Coulling