The US dollar index is a measure of the strength of the US currency unit against a weighted average of its major global counterparts, i.e. the Euro, British Pound, Japanese Yen, Canadian dollar, Aussie dollar, Swiss franc and Swedish Krona. The chart above shows the manner in which the index has been powering ahead during the second half of 2014 and into 2015.
This makes the greenback significantly overbought in trading terms. This means that, as it rises further, it will find it harder and harder to maintain its momentum to the upside.
Because of its weighting in the dollar index, the Euro is the currency that is more responsible than any other for the value of said index.
Now, a recently elected independent European Member of Parliament (MEP), who came to enough local prominence to be adopted by the voters for his trenchant opposition to the rationalisation of hospital services in Roscommon (Pop 64k), Ireland, has gained a measure of global recognition, and added further to the strength of the Greenback, due to comments made in the response to a letter he wrote to ECB President, Mario Draghi.
In his reply, Draghi had this to say:
“… the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate. This may imply adjusting the size, pace and composition of the ECB’s measures. Such measures may entail the purchase of a variety of assets ‒ one of which could be sovereign bonds, as mentioned in your letter”.
This has been picked up by economic and other publications right across the planet, and resulted in a further weakening of the Single Currency yesterday, to the additional benefit of the US dollar index.
Non-farm Payrolls today better be good
Today is Non-Farm Payrolls day in the USA. The Mandelbrot timing functionality will keep it out of the market until there is likely to be a direction established as a consequence of the NFP figures for those currency pairs that involve the US dollar.
Because of the elevated level of the dollar, discussed above, even a relatively good employment figure from the US Bureau of Labor Statistics could mean indecision on the part of Forex market participants, which often results in severe short-term bidirectional volatility immediately after this particular data release. Such extreme price action can harm account equity.