The US Dollar continues to have its detractors, but the flight to quality effect is undeniable. Simply said, when the going gets tough, traders and governments alike flock to the greenback. Outside of flight to quality buying, the Dollar has also moved higher on its own merit. Some traders may wish to focus on the technicals in the near-term. It is imperative that the Dollar hold its recent breakout to keep momentum. Failure to do so could result in a correction or consolidation.
Fundamentals
The US Dollar Index has been on the move higher, lifted by safe haven buyers fearing the worst in Europe. The greenback has been gaining momentum during the commodity rally, which is a rare occurrence. This can be attributed to the lack of faith in the European Union and their ability to keep the debt crisis from completely going out of control. It is not just EU doomsayers shedding the Euro for the US Dollar, but also traders with more conservative outlooks that believe Europe will simply lag behind the US in growth. The severe slowdown in the BRIC countries has also been a concern.
Technical Notes
Turning to the chart, we see the most recent upswing in the Sep Dollar Index beginning a little more than a month ago. This has resulted in prices taking out the relative highs near 83.50 made in late May. In order for the market to keep its upward momentum, prices need to hold above the 83.50 level. Otherwise, a pullback or stagnation may be on the horizon. The 20 and 50-day moving averages have acted as support lately, so traders may want to keep an eye on these indicators.
