Forex: Dollar Extends Rebound but Loses Momentum Before Key Breakouts

August 23, 2013

LONDON (Aug 23)  The Dow Jones FXCM Dollar Index extended its rebound Thursday, but it would lose its drive before the greenback could secure breakouts on pairs like EURUSD and USDJPY. Nevertheless, the benchmark’s performance on the day is impressive against the backdrop of swell in risk appetite. Looking to the US equity markets, the battered S&P 500 muscled a 0.9 percent rally – the biggest run in threeweeks – to close just below its 50-day moving average and the range of highs established throughout the week.

Investor sentiment is less bullish than it is congestive, and that lack of conviction carries over to the safe haven dollar. Sentiment is thereby neither a benefactor nor burden. Yet, as much potential as the ebb and flow of risk positioning has on capital flows and the dollar, there are a few other fundamental themes that the currency can revert to when left to its own devices.

The second most influential driver for the dollar is the market’s view of the Fed’s Taper timetable. Following up on the FOMC minutes’ revelation that the group broadly supported the schedule Bernanke laid out in June, the New York Fed released the results of its primary dealer survey. According to the consensus, the major banks charged with dealing Treasuries expect a September Taper of $15 billion – more than economists expected. Further, the group projected a further $15 billion cut in December and halt by June.

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