The buck had another rough day Thursday, it was almost a carbon copy of price action on Wednesday when the dollar started modestly bid ahead of EMU periphery bond auctions but lost ground after these auctions were met with firm interest. While on Wednesday the index found support around the 80.00 level yesterday the index dropped to the 79.00 level before finding any form of support. As we mentioned yesterday we feel that the euro's climb is overdone and a few successful auctions don't really mean that much, especially since the cost for these nations to finance this debt continues to rise as investors demand more. In our opinion this somewhat unwarranted fall of the buck against the euro could present a good opportunity for fresh long USD and short EUR positions, since we don't forecast the storm clouds which rest over Europe at present clearing with the upcoming spring sunshine.


Despite our bullish medium-term fundamental outlook for the greenback and bearish forecasts for the euro-region a technical evaluation of the index doesn't look so rosy if neckline support is broken at 79.00. As we can see above the double-top formation, which we suggested might be forming earlier in the week, has indeed formed and is threatening to break through support, a clear break and close below 79.00 opens up a re-trace back toward the 76.00 region.

Therefore, we stand at something of a cross-roads and we will wait and see how trade plays out today. If the index can bounce away from the 79.00 region it might start next week on a more solid footing, alleviating pressure to the downside and keeping our fundamental outlook in tact. However, as mentioned, a break and close below this support level will open the door to further dollar losses, while this wont negate our medium-term term outlook for the buck, which is very bullish, it will keep us sidelined for now, until we find an attractive entry point.

Written by Jonathan Granby, DailyFX Research Team

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