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Dollar Momentum Continues to Grow

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Dollar Momentum Continues to Grow

The dollar gained traction on Tuesday as the Chinese credit squeeze eases following the Peoples Bank of China’s liquidity move. China’s seven-day repurchase rate declined nearly 3.5% percentage points to 5.4% after the People’s Bank of China injected 29 billion yuan into the money markets via regular open-market operations.

The benchmark rate had soared to nearly 9% over the previous five days due to the PBOC refraining from open-market activity since the start of December as part of its attempt to rein in soaring debt. Emergency liquidity injections last week had failed to ease the credit squeeze, which had hit stocks pushing the Shanghai index down for 9-consecutive days.

On Monday the Commerce Department released data that showed spending on the rise in the US. Personal consumption climbed 0.5% in November from a month earlier, the fastest pace since June. The gain was driven by a boost in spending on big-ticket items, more than half of which came from automobiles. Personal income increased 0.2% in November after falling 0.1% in October. As a result, consumers dipped into their savings to maintain their spending.

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The EURUSD currency pair moved through support created by an upward sloping trend line that comes in near 1.37. Resistance on the currency pair is seen near the recent high at 1.38. Momentum on the currency pair is negative with the MACD (moving average convergence divergence index) generating a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The RSI (relative strength index) moved lower with price action reflecting accelerating negative momentum. Currently the RSI is printing near 51 which is in the middle of the neutral range.

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