Good day forex traders.
A number of analysts believe that the reaction to the dovish stance of the US Federal Reserve is overdone. Technical signals indicate that the weakening of the US dollar may be over stretched. Having said so, sentiments may be a strong driving force. This Bloomberg report updates on the developments.
The dollar’s third straight weekly decline is triggering signals that U.S. currency weakness may be overdone.
The greenback has gone from beating its major peers last year to losses against every one of those currencies this month. That’s pushed one measure of dollar momentum, the relative strength index, to its most extreme in almost four years as the Federal Reserve signaled a slower pace for raising interest rates. The dollar outperformed most developed and emerging-market currencies the past two years as the promise of superior economic growth and rising interest rates contrasted with sluggish economic activity elsewhere. Investors are questioning whether the U.S. can escape headwinds from a slowing global economy.
"The market has gone to an even greater degree of disbelief the Fed will raise rates, and I’m just puzzled by that," said Greg Anderson, global head of foreign-exchange strategy in New York at Bank of Montreal. "For the market to have abandoned the dollar this soon is pretty premature."
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, touched its lowest point since June on Friday. The index’s relative strength index, a measure of momentum, fell to 24.7 on March 17, the lowest level since 2012. Technical analysts say an RSI reading below 30 means the run of weakness has gone too far and may be poised to reverse.
The greenback fell 1 percent this week to $1.1270 per euro and weakened 2 percent to 111.55 yen. Currency Trends
The dollar plunged this week after Fed officials held off from raising borrowing costs and scaled back forecasts for how high interest rates will rise this year, citing the potential impact from weaker global growth and financial-market turmoil on the U.S. economy.
The greenback’s collapse has the Bloomberg index trading more than 2 percent below its 200-day moving average. The index has weakened almost 4 percent this year, paring a 9 percent gain in 2015 and an 11 percent rally the year before.
Hedge funds and other large speculators reduced bets on dollar gains against eight major currencies to the lowest level since August 2014. The so-called net longs dropped […]
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