18, September 2013

EUR/USD (a 4-hour chart)

EUR/USD (a 4-hour chart)

The U.S. dollar index DXY on Monday opened with a gap down on the news that Larry Summers officially withdrew his candidacy from consideration for the post of the Federal Reserve chairman. The probable candidate Janet Yellen is known as a supporter of mitigation policies, so the market reacted to the news in this way. The fall stopped at 81.01. The initial euphoria (the market's reaction to the news was to sell the dollar), has lost some of its luster once the 81.01 level has been tested and it proved to be successful as a support. In addition, Bernanke is still in office and the restriction should start under his control.

The dollar index ICE (DXY), which tracks the U.S. currency against six rivals, fell to 81,268 from 81,520 on Friday night in North America.

The index was at 81.50 on a Sunday afternoon, when it became known that Summers knocked out of the race to replace the current Fed Chairman Ben Bernanke, who is expected to retire when his term expires in January.

DXY eventually found support at 81.01. If this level holds out, we can see an increase of at least 82.69 and possibly to 83.35/75. A break and close below 81.01 would test 80.50 and possibly to decrease, down to 79.00.

In general, everyone is still selling the single currency. First, the general economic background is not so good. And secondly, and most importantly – expectation of QE3 ending from the Fed still has to turn the tide, and the dollar may well begin to grow stronger. It is very difficult to say what could be the trigger for a new down-trend, but any word of Bernanke at the upcoming meeting of the Fed's long term end of the program can inspire bears to new exploits.