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Volatility Continues to Whipsaw the Dollar

David Becker
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www.iforex.com
Volatility Continues to Whipsaw the Dollar

The dollar continued to whipsaw on Friday, as investors attempted to get a handle on the new capital market volatility. Throughout the year, prices have been relatively tame with the exception of the volatility experienced in the first month of the year. European economic data continued to disappoint, but the swoon in equity markets is generating headwinds for U.S. interest rates which is capping the upside for the greenback.

Volatility in the capital markets is evident, and oil prices are taking the brunt of the investor fear. Prices of crude oil are down more than $5 per barrel this week the largest weekly drop in 2014. The benefit to consumers will be the reduction in gasoline, which will likely get pumped back into the economy.

French industrial production was subdued in August, after climbing 0.3% month over month in July. The annual rate dropped to -0.3% year over year from 0.2% year over year. Although the economic data were in line with estimates, the -0.2% month over month contraction in manufacturing production is a concern. The numbers will add to concerns that the Eurozone recovery is already coming to an end.

For the week, the EURUSD is higher, and could test weekly resistance near the 10-week moving average at 1.2975. Support is seen near the weekly low at 1.2500. The relative strength index (RSI) which is a momentum oscillator that measures overbought and oversold levels, is printing a reading of 26, which is well below the oversold trigger level of 30 and could foreshadow a correction. Momentum as reflected by the MACD (moving average convergence divergence) index is negative as the index prints below the zero index level at the lowest level seen in the past 6-months, which reflects further negative price action in the future.

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