The March U.S. Dollar Index traded mixed overnight. On Wednesday, the index sold off sharply in reaction to a surge in the Euro. Fed comments later in the session and reports of a contraction in the U.S. economy helped provide a bounce shortly before the close.
Overnight the Euro backed down from its new multi-month high but managed to hold above support at 1.3491. This action helped to give the dollar some support. The dollar is also posting a gain versus the Canadian Dollar but struggling with the Japanese Yen and Australian Dollar.
An unexpected drop in the U.S. fourth quarter GDP and a subdued outlook for the economy by the Federal Open Market Committee helped underpin the Greenback late Wednesday. This appears to have caused some confusion for dollar traders who helped hold the dollar in a limited range overnight.
The main trend is down on the daily chart, but the March U.S. Dollar Index stopped short of taking out the December 19 bottom at 79.01. The overnight stabilization suggests that the index may have reached an oversold level.
Lower demand for higher risk assets could be the catalyst that drives the dollar higher. Traders should watch the action in the equity indices to determine if yesterday’s late session reversal down was real. Weaker stock prices could trigger a short-covering rally that fuels a retracement back to 79.77 – 79.87 over the near-term.
It is possible that trading could be light because of tomorrow’s U.S. Non-Farm Payrolls report. If this is the case then look for an inside trading day.