The U.S. Dollar is trading flat-to-lower overnight after reaching its lowest level in nearly three years. This latest round of pressure on the Greenback began on Wednesday after the Fed announced that its current QE2 program would end as planned in June.
In addition, Fed Chairman Bernanke‘s historical press conference following the FOMC policy announcement offered nothing to support the Dollar either. Bernanke basically reiterated his call for a prolonged period of “easy money”.
With Bernanke pledging to maintain the size of the Fed’s balance sheet, sellers continued to apply pressure to the Dollar. The down move accelerated early in the U.S. trading session on Thursday after the Commerce Department reported that U.S. gross domestic product rose at a 1.8% annual rate for the first three months of the year. This annual rate was slower than the fourth quarter rate of 3.1%. Lukewarm weekly jobs data also gave traders no reason to consider supporting the Dollar.
Bernanke basically green lit another drop in the Dollar with his dovish commentary although short-term oversold factors seem to have tempered the Dollar’s latest downdraft. This is likely to be a short-lived condition since the fundamentals support further downward movement. Expectations are for the slide to continue unless acted by an unexpected outside force.
News that Euro Zone inflation rose further above the European Central Bank‘s target in April is helping to drive the Euro higher this morning. Although weakening economic sentiment and household demand are likely to cause the ECB to refrain from hiking its benchmark rate in May, there is evidence that traders are now shifting their positions to reflect an interest rate hike in June rather than July.
Fundamentally, the interest rate differential continues to favor the Euro, thereby providing all of the support it needs. Technically, the main trend is up with a new higher swing bottom formed at 1.4157. According to the daily chart, the Euro is toying with a possible acceleration to the upside as it hovers on both sides of a steep uptrending Gann angle at 1.4877. On the weekly chart, the single-currency is rapidly nearing a major swing top at 1.5144.
Continue to look for the Euro to appreciate versus the Dollar as bullish traders are simply trading a hawkish monetary policy versus a dovish monetary policy. Although there is likely to be short-term set-backs due to overbought conditions, it doesn’t get any easier than this for trend traders.
