The U.S. Dollar Index (DXY) Edges Closer To Major Support

By Jim Donnelly, Olson Global Markets

While deemed one of the most “crowded” trades currently on investor’s books, the popularity of being short the U.S. dollar, or the dollar index (DXY) may have been tempered slightly following the news surrounding Dubai’s debt problems over the Thanksgiving holiday. With oversold conditions currently present, some observers have been on the alert for an exogenous event to possibly trigger a “run to safety” trade into the dollar and, in turn, causing a spirited “short-covering” greenback rally.

Worries over the exposure to Dubai’s debt that a number of global lenders have was just another reminder of the residual credit “risks” that could cause havoc in the global marketplace. An unexpected rally in the dollar, of course, would likely result in bearish corrections in both commodity and equity prices.

From a technical point-of-view, the dollar index (DXY) is edging ever closer to a cluster of support near the 73.50 area that should define its direction over the intermediate-term. Elliott-wave analysis alone, suggests that the bearish run in the dollar is likely approaching a conclusion.

With that said, a solid break below 73.50 on the DXY would be a troubling situation for central bankers and the balance of trade internationally. China’s currency remains largely pegged to the greenback which would make both U.S. and Chinese exports look more and more attractive to global consumers at the expense of European and Japanese products and services. That is another issue.

For the time being, key a close eye on the 73.50 level on the DXY.

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