Dollar Decline Resumes: EUR/USD to Take on 1.3737

05/20/2009 11:52 am EST

Focus: FOREX

After brief consolidation, the dollar's decline resumes today with the dollar index finally diving through the 81.87 low. Risk appetite comes back into play as the VIX—CBOT's volatility index—and Europe's equivalent Vstoxx, both dropped to the lowest level since Lehman's bankruptcy. Sentiment is also lifted after Bank of America said it has raised $13.47 billion in less than two weeks, clearing concern of the bank's ability to raise capital in markets. US stocks opened higher and are set to challenge the recent 8,587 high.

Commodity currencies remain stronger against the dollar, while the Canadian dollar is additionally boosted with crude oil extending its recent rally to the 61 level. The euro is also set to take on the March high of 1.3737 against the US dollar.

The break of 81.87 confirmed our near-term bearish view on the dollar index. The fall from 86.87, which is treated as part of the whole decline from 89.62, should have resumed for the next target of 100% projection of 89.62 to 82.63 from 86.87 at 79.88. Nevertheless, we'd maintain that such a decline is treated as either a correction to the rise from 77.69, or part of a large range consolidation pattern from 88.46. Hence, downside is expected to be contained above the 77.69 low, possibly by the 80 psychological level.

Meanwhile, a break above 83.22 resistance will now serve as the first alert that the dollar index has bottomed out.

By ActionForex.com Staff

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