Daily Market Summary: Is the dollar reversal in sight?

Fundamentals still remain the key drivers of activities on monday as equities in the US and America saw a surge on monday. European stocks surged on the German Chancellor's victory in the weekend elections in Germany. The DAX had edged up 2.78% by the end of trading while the CAC and the FTSE100 edged up 2.3% and 1.7% respectively. In the US, news of Xerox acquiring ACS buoyed risk sentiments as the DOW, Nasdaq and S&P 500 finished up by 1.28%, 1.9%, and 1.78% respectively. As traders look to market moving fundamentals coming later in the week, technical analysis point to a possible dollar reversal. The euro failed to break through resistance at 1.4675. The graph below shows some form of head and shoulder pattern formed with the bearish trend emerging on the eur/usd 1 hour chart.


Short term resistance might be at 1.4675 while the second short-term resistance is at 1.4725.

Another sign of a possible change in risk sentiments is the fact that the volatility index (VIX) is at a multi-period low and when compared against the S&P 500, there are clear market correction signals on the S&P 500 index.



Traders are keeping their eyes on the volatility index which is at a multi-year low which signifies a possible correction in equities and a collapse of risk appetite which is good news for the dollar.

Traders expect further decline in the sterling as they look to GDP figures due in hours which is expected to show a year-on-year drop of 5.8% in the size of the british economy. For most of the day the sterling traded sideways.

As the dollar comes under more pressure as a global reserve currency, long-term US treasury bonds increased (yield dropped) as investors appear to be moving into US safe haven assets. Eyes are also on commodities especially on oil following geographical tensions that stirred between the US and its allies on one hand and Iran on the other over Iran's suspected secret nuclear bunker in Tehran.

So far, its still very much about the green-back. Happy trading!!!