Chart of the day: Investors keep faith in dollar
The sharp setback experienced by the US dollar in recent days does not appear to have stirred investors to a change of heart. Speculators actually increased their net-long dollar positioning in the week to last Tuesday, and it remains sizeable at 29 per cent of open interest against a long-term average of minus 1 per cent (ie. a net short). At the same time, institutional Absolute Strategy Research survey participants still see a 66 per cent probability of a stronger dollar in 12 months' time. What might challenge that view from a technical perspective? In the case of the dollar index, 100 now represents near-term resistance. In terms of downside support, 95 is likely to be a key level, having provided resistance earlier this year and being close to a 23.6 per cent Fibonacci retracement level, based on the dollar's rally from May last year to this month. A break below 95, targeting a move to test 92 (the next Fibonacci support area), would likely begin to challenge investors' entrenched optimism on the dollar.
David McBain is a technical strategist at Absolute Strategy Research