CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

USDX at 2 year Highs

Article By: ,  Financial Analyst
May 23, 2012 12:49 PM

EUR/USD hit a new low on the year, at $1.2612, down 2.3% year-to-date, and down 6.5% from its February highs.

As long as major central banks refrain from any new liquidity action in the form of FX swap (as in Dec 2) and the IMF remains silent before the Greece June 17 elections, the path of least resistance for traders to continue selling the euro rallies and eventually targeting the 2010 lows under $1.18.

Broadening the USD view into the US dollar index and away from EUR/USD, we find that the USDX is testing levels not seen since September 2010. The importance of the USDX is highlighted in its use by macro hedge funds and Commodity Trade Advisers (small size hedge funds). As the index takes out the January high of 81.78 and hits a new 2-year high of 81.93, it risks extending stops and algos executing sop orders and cascading the ascent into 82.40 (6.18% retracement of the decline from the 2010 high to the 2011 low), followed by 83.50.

As the cyclical waves over the last five years may suggest, a recurrence of 87 and beyond cannot be ruled out for later this year. Fundamental catalysts include
i) mismanaging a Greek exit
ii) lack of resolution and deadlock between Athens & Troika without necessarily a Greek exit
iii) unsuccessful interventions from global central banks (coordinated FX swap, LTRO-3, BoE QE-4 and more BoJ easing) and
iv) the Fed’s reluctance to issue a second round of outright QE. Operation Twist is not deemed a sufficient generation of liquidity and a booster of risk-on trades if on its own.

On the downside, USDX rests on its 200-week moving average, coinciding with the trendline support extending from the August 2011 lows.

EUR/USD retests the $1.2600 figure, where we expect tepid support, coinciding with the 76.4% retracement of the rise from the June 2010 low to the May 2011 high. As the pair enters its fourth consecutive weekly decline (longest losing streak since November), the pattern may prove again similar, whereby a bounce may follow next week (coinciding with hasty informal EU summits).

As long as major central banks refrain from giving any new liquidity in the form of FX swap (as in Dec 2) and the IMF remains silent before the Greece June 17 elections, the path of least resistance for traders to continue selling the rallies. The 1.20 is becoming increasingly a matter of “when” rather than “if”. We expect selling momentum to intensify in late summer and into $1.20. In order for EUR/USD to reproduce the 22% declines in the prior two cycles of 2008 and 2010, the pair would have to reach $1.16, which would be the lowest since 2003.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024