US Dollar Index (DXY) Stays On The Defensive, Euro Correction Cushions Losses

A significant Euro correction against all major currencies helped protect the dollar on Wednesday, but it struggled to pull away from monthly lows. Overall, losses from current levels should be very limited in the short term with further immediate support near 95.30.

The dollar remained under pressure during the Asian session on Wednesday with the Euro holding firm while there were further losses against the yen.

Fresh controversy surrounding the US Administration had a significant impact in undermining the US currency with USD/JPY below 113.50 and the dollar index tested one-month lows around 95.30.

Fed Chair Yellen stated that further rate increases would likely be warranted over the next few months. She also reiterated that she expected the recent weak inflation data to be due to temporary factors.

Nevertheless, she also remarked that the Fed would not need to raise rates all that much further to reach current low estimates of the neutral Fed Funds rate.

The US currency came under some pressure following the prepared testimony with a dampening of expectations surrounding medium-term interest rate increases. The dollar index immediately dipped lower with a trough close to 95.35.

The US currency also lost ground against the Australian and Canadian currencies which had some negative impact while USD/JPY continued to move lower with a test of the 113.00 area.

The Euro was, however, subjected to a sharp correction on the main crosses with a notable retreat against the yen and Sterling.

The Euro also lost ground against the dollar with EUR/USD dipping to test support below the 1.1400 level from highs above 1.1470 recorded soon after Yellen’s statement.

The Euro decline had a significant impact in protecting the dollar index which rallied to the 95.70 area, although it was unable to sustain the advance.

Dollar Index (DXY) 4-Hour Chart

dxy12-07-17

Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.