Peter Ruud's Blog

The US Dollar fell across the board following a surge in global risk appetite. Solid corporate earnings by General Electric and a record high in a German confidence helped drag the safe-haven greenback lower, triggering a 0.84% loss on the day against a trade-weighted basket of currencies. The Dollar Index (DXY) failed to clear the key 78.820 pivot, which served as former platform support and the neckline of the latest double top formation.
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Today's bearish price-action also marks the first close below the midpoint of the November advance. The next downside target is 77.842, where the 61.8% retracement lies. If a corrective rally fails to materialize above the former midpoint level at 78.538, then the double top target could be in the cards. Ironically, this measured move coincides with long-term trendline support that originates from the all-time lows. Moreover, this would also equate to a retest of critical support of 22 for the Dollar Index ETF (UUP).
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While a weekly bearish engulfment pattern was confirmed with this week's follow-through weakness, there is a glimmer of hope for dollar bulls. Often when price-action closes at the lows of the week, this is often representive of a short-term selling exhaustion. Also, the latest Commitment of Traders report the demonstrated that euro speculators had flipped to a small net-long position earlier in the week. This suggests the completion of short-covering for the EUR/USD and could limit gains in the near-term.
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Meanwhile, the highly correlated 2-year EU/US yield gap tested the November low before consolidating for the remainder of the North American session. A move above the +68 basis point differential would mark a fresh 2-year high in the EU's favor. As such, the euro should continue to outperform while european peripheral yield spreads narrow yield differentials vs. the US continue to widen.