American indices added yesterday on strong earnings reports, where tax cuts were favorable for profit. Asian indices in the morning add-on speculation that China will protect local companies from the trade conflict with the U.S. through fiscal stimulus. Besides, the restrictions on speculation introduced by Beijing a few days ago had a positive impact on Chinese bourses and the yuan. As a result, The Renminbi increased by more than 1% to U.S. Dollar.
Globally, the dollar recedes this week and turns lower from the important resistance levels. The dollar index has turned to a decline, failing to gain a foothold above 95, and this morning it loses another 0.2%, increasingly receding in the middle of the three-months trading range. The important resistance has once again shown its strength. Often, after an unsuccessful testing of extremums, it is necessary to expect a rollback in the middle of the trading range (-0.5% to 94.4) or to its bottom (-1.3% to 93.60).
However, it should be noted that global risks are still offset in favor of the dollar: the fears of trade wars and a slowdown in the growth of the global economy.
In these circumstances, beyond short-term fluctuations, the American currency still retains the potential to strengthen and exit the trading range of the recent months. August is considered to be a quiet month with low activity in capital markets, but at this time usually, the basis for the rally builds up for the next few months.
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The period of trading in the channel can quickly be changed by the rise of volatility, as it was in April after the consolidation in January-April when DXY had added 6% for a month and a half with almost no adjustments. A similar scope of movement this time will allow the dollar index to return to the psychologically important boundary of 100.
As we wrote yesterday, in the short-term the dollar growth can reduce inflationary pressure in the US and deter the Fed from an excessive tightening of monetary policy.
This article was written by FxPro