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USD bulls eyeing 81.00 and beyond

The greenback, measured by the US Dollar index, has reverted to its negative trend at the beginning of February when it dipped to sub 79.00 levels, climbing since to today’s highs in levels shy of 80.80. The late context of increased risk aversion alongside ongoing controversy surrounding the so-called ‘currency war’ have collaborated in the positive momentum.

… All green ahead

Ahead in the week, the FOMC will publish its minutes from the last meeting. Against the backdrop of a relentless albeit slow improvement in the US labor market, market participants would be eager to see whether the voting pattern regarding the ongoing QE programme has changed its picture. It’s worth recalling that in past meetings the voting scenario was divided into three camps: some board members hinted at the likeliness that the current stimulus programme could be totally halted in the very near term, some others would have preferred to slow it down and finish it towards the beginning of the second half of 2013 and the rest were favouring its continuation throughout the rest of the year.

In the short-term, dollar-bulls are counting on a couple of direct sources for feeding their wishes: the Italian elections, due on February 24th and 25th would be supportive of the USD as long as the polls’ favourite scenario – a government ruled by P.L.Bersani and M.Monti – continues to be jeopardized by the proximity of former PM S.Berlusconi and/or the fomer TV-comedian, B.Grillo. The final outcome remains yet open, although whoever comes victor will face the risk of rising spread differentials and further structural reforms.

The other source of bullishness for the US dollar comes from the so-called US ‘sequester’, which has a March 1st deadline. If both Republicans and Democrats don’t agree – broadly speaking, on tax increases and spending – thousands of jobs would be in danger and spending cuts worth $1.2 trillion would be triggered across the board.

Furthermore, the combination of the US economy outperforming its peers during the current year plus the likeliness of the Fed either stopping or slowing down its ongoing injection of liquidity - in contrast with other major central banks, which are already increasing its money printing or are near to do so – would collaborate in the positive prospect for the US dollar.

At the moment, the US Dollar index is trading around 80.70, totally trimming January losses and facing the immediate relevant hurdle at 80.85 (Bollinger Band) followed by the psychological level at 81.00. The facts that the up move is developing above the cloud and that the RSI is in positive ground are supportive of further upside.

In the opposite scenario of a correction, the initial support lies in the 80.50/55 region, home of the 55-day moving average and the Kijun line. If breached, it will then expose the area of 8035/40, where sits the 23.6% Fibo retracement and the 100-day moving average

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