The US dollar continues to come under pressure across the board, despite the high degree of cynicism towards Friday’s benign outcome to Europe’s stress tests.

Improving economic data and continued strong earnings performance have also helped in this regard, boosting risk appetite at the expense of the greenback while gold slips back near to its lowest levels since May, and also near a key trend line support level around $1,176 which links the lows from October 2008 lows at $682.50.

The Australian dollar has also traded back above 0.9000 for the first time since early May as the US dollar index continues its declines hitting its lowest levels since the end of April and heading towards a 50% retracement at 81.44, of its entire up move since the beginning of December last year.

US new home sales for June, surprised to the upside with a rise of 23.6% against an expectation of a rise of 5%, however this was a little offset by the revision of the May figure from -32.7% to -36.7% and this has encouraged a market determined to take on more risk.

In further consumer related data out today US consumer confidence for July will be scrutinised especially after the surprise falls last month, with analysts expecting a slight fall to 51 from June’s 52.9 reading.

In UK data out today the pound should continue to find support by way of the CBI’s distributive trades survey for July, which is expected to show a continued month on month improvement, showing that the balance of retailers reporting that sales were up year-on-year rose to +5% in July from -5% in June, and a 14-month low of -18% in May.

Euro – Dollar Spreads – The single currency continues to hold up well against the dollar but continues to find the going tricky just below the recent highs around the 1.3030/40 level of the past seven days. While below these peaks, the risk remains for a pull back towards Friday’s lows around the 1.2840/50. However, while above Friday’s lows the likelihood of a move towards the 38.2% Fibonacci retracement level of 1.3125, increases on a break above the recent highs around 1.3030/40.

Pound – Dollar Spreads – the pound continues to gain against the dollar matching its April highs yesterday around the 1.5520 level.

The pound’s recent rise now brings it close to a couple of important technical levels around 1.5560, which is the 200 day moving average, and the 50% retracement of the down move from the November highs at 1.6880 and the lows this year at 1.4230.

If one also includes 1.5610, which is the 61.8% retracement level of the 1.6460/1.4230 down move, then a break up through here could well target 1.5900 in the coming days.

Long term trend line support levels, remain around the 1.5190/00 area, from the June lows at 1.4350, while there is also minor support around the 1.5330/40 area. A break below 1.5180/90 potentially opens up 1.4980,

Euro – Sterling Spreads – while the euro remains stuck below the 0.8400/10 area then the potential remains for further losses on a break through support at the 0.8320/30 level.

Back above the 0.8400/10 level would re-target last week’s highs around 0.8520/30 via resistance at 0.8470. A break below 0.8320/30 back towards 0.8240, while 0.8410 caps.

Dollar – Yen Spreads – the 88.00/10 level remains the key barrier to any dollar gains here in the short term on the back of another failure yesterday to break above it.

While on the downside the 86.25 support remains the key obstacle towards further yen gains towards last year’s yen lows at 84.80. A break above 88.00/10 would re-target the 89.20/30 level while a break of 84.80 would look to target the 1995 lows below 80.00.

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Article by James Hughes, Analyst, CMC Markets.

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